Q4 2022 Tencent Holdings Ltd Earnings Call
Unknown Executive: and Uncertainties, and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to but not as a substitute for measures of the group's financial performance held in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS, please refer to our disclosure documents in the IR section of our website.
Speaker 1: risks and uncertainties and may not be realized in the future for various reasons.
Speaker 1: Information about general market conditions is coming from a variety of sources outside of Tencent.
Speaker 1: This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance held in your course with IFRS.
Speaker 1: For a detailed discussion of risk factors and non-IFRS measures,
Unknown Executive: Now, let me introduce the management team on the webinar tonight. Our Chairman and CEO, Paul Nima, will kick off with a short overview. President Martin Lau will discuss the strategy review, and Chief Strategy Officer James Mitchell will provide a business review.
Speaker 1: Please refer to our disclosure documents on the error section of our website.
Speaker 1: Now let me introduce the management team
Speaker 1: Our Chairman and CEO Poni Ma will kick off with a short overview. President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lowe will conclude with financial discussion before we open the floor for questions. The Chairman will now is presented with an overview of the wh- Access
Unknown Executive: Chief Financial Officer John Lo will conclude with a financial discussion before we open the floor for questions. I will now pass it to Pony. Thank you, Wendy.
Unknown Executive: Good evening. Thank you everyone for joining us. In 2022, we will increase our business efficiency, sharpening our focus on core activities, and develop new services and revenue lines, assisting us to achieve a sustainable growth model in the future. A few notable achievements. In WeChat, video accounts became a leading shop for video and live streaming platforms in China, while many programs achieved strong growth in both DAU and GMB, contributing to real economic development. Walk-ins, domestically, we significantly reduce our miners' time spent while sustaining our market leadership.
Speaker 1: I will now pass it to Poni. Thank you, Wendy.
Speaker 2: Good evening. Thank you everyone for joining us.
Speaker 2: During 2022, we increased our business efficiency, sharpening our focus on four activities, and developed new services and revenue lines, positioning us for a sustainable growth model in the future.
Speaker 2: A few notable achievements.
Speaker 2: In reaching, video accounts became a leading shock from video and live streaming platforms in China. Far many programs achieved strong growth in both DAU and GMB, contributing to the real economics is badminton.
Speaker 2: For gains domestically, we significantly reduce our minuses' time spent while sustaining our market leadership."
Unknown Executive: Internationally, we elevate Violent as a top global franchise and publish two out of the top three new mobile games of the year. In advertising, we return to positive revenue growth in the fourth quarter through the launch of video accounts in feed ads, enhance the transaction-driven capability of our ad inventories, and improve our machine learning infrastructure. For cloud, our upgrade strategy resulted in initially lower revenue but improved gross profit margin. We assisted in the digital transformation of non-internet industries and public services.
Speaker 2: Internationally, we elevated Valorant as a top global franchise and published two out of the top three new mobile games of the year.
Speaker 2: In advertising, we return to positive revenue growth in the fourth quarter.
Speaker 2: through the launch of video account in FeedAd, enhance the transaction-driven capability of our ad inventories, and improve our machine learning infrastructure.
Speaker 2: For cloud, our upgrade strategy resulted in initially lower revenue but improved gross profit margin. We assisted that the digital transformation of non-internet industries and public services.
Unknown Executive: During the year, we return increased capital to our shareholders through distribution in-kind, share repurchase, and cash dividend. We also made significant progress in our efforts to create sustainable social value. [inaudible] We announce our commitment to carbon neutrality by 2030.
Speaker 2: During the year, we return increased capital to our shareholders through distribution in-kind, share repartee and cash dividends.
Speaker 2: We also made significant progress in our drive to create sustainable social value. For example, we announced our commitment to carbon neutrality by 2030.
Unknown Executive: Our digital charity platform raises donations for over 25,000 projects and engages more than 100 million users. In support of basic research, we pledge $10 billion RMB over the next 10 years to establish the new Cornerstall Investigator Program. On the governance front, we welcomed Professor Zhao to join the Tencent Board last August. Martin will rotate off the board at the upcoming AGM while fully dedicated as our exceptional participants.
Speaker 2: Our digital charity platform raised donations for over 25,000 projects and engaged more than 100 million users.
Speaker 2: In support of basic research, we pledge 10 billion RMB over the next 10 years to establish a neo- Monitor Executives investigator program.
Speaker 2: On the governance front, we welcome Professor Zhang to join the Kansan Board last August .
Speaker 2: Martin will rotate off the board.
Unknown Executive: These adjustments will more clearly separate board from executive in the list of possibilities, increase the proportion of independent directors, and increase the proportion of female directors. Now, let me go through the headline financial numbers for the quarter. During the fourth quarter, total revenue was 145 billion RMB, up 0.5% year-on-year and 3% quarter-on-quarter. Gross profit was 62 billion RMB, up 7% year-on-year and broadly flat quarter-on-quarter. Non-IFRS operating profit was 39 billion RMB, up 19% quarter year-on-year or down 4% quarter-on-quarter.
Speaker 2: at the upcoming AGM while fully dedicated as our exceptional president. This adjustment will more clearly separate both from execute the risk possibilities, increase the proportion of independent directors and increase the proportion of email directors.
Speaker 2: Now let me go through the headline financial numbers for the quarter.
Speaker 2: During the fourth quarter, total revenue was 145 billion RMB up 0.5% year-to-year and 3% quarter-to-quarter.
Speaker 2: Close property was 62 billion RMB, up 7% year-on-year, and broadly flat quarter-on-quarter.
Speaker 2: Non-IFIS operating profit was 39 billion RMB up 19% quarter year-on-year or down 4% quarter.
Speaker 2: Non-IFI SNAP profit attributable to equity holders was 30 billion RMB up 19% year-on-year or down 8% quote-unquote.
Unknown Executive: The non-IFRS NAB process attributable to equity holders was 30 billion RMB, up 19% year-on-year or down 8% quarter-on-quarter. Now I will hand over to Martin for the strategy review. Good evening and good morning to everybody, and thank you Tony for the kind words earlier.
Speaker 2: Now I will hand over to Martin for the strategy review.
Martin Lau: I look forward to sustaining and indeed enhancing my dedication as Tencent's president in the years ahead. With that, I will share some of our perspectives on our strategy for the future, which we believe is actually very exciting. In the year of 2022, we aligned our businesses with the new industry paradigm while continuing to invest and pursue value creation opportunities in strategic areas. Today, I'm pleased to tell you that our consistent efforts have yielded encouraging results, and we have successfully repositioned ourselves for sustainable and high-quality growth.
Speaker 2: Good evening and good morning to everybody and thank you Tony for the kind words earlier. I look forward to sustaining and indeed enhancing my dedication as Tencent's president in the Chandnifer earnings account over many dozens of years past, thirty million years ahead.
Speaker 2: With that, I will share some of our perspectives on our strategy for the future, which we believe is actually very exciting.
Speaker 2: In the year of 2022, we aligned our businesses with the new industry paradigm while continuing to invest and pursue value creation opportunities in strategic areas. Today, I'm pleased to tell you that our consistent efforts have yielded encouraging results and we have successfully repositioned ourselves.
Martin Lau: Let's take a look at our financial performance, which has started to improve since mid-2022. Particularly for the fourth quarter, our revenue stabilized on a year-on-year basis, following the decline in the last two quarters. We achieved year-on-year improvements in gross margins across all business sectors. Non-IFRS operating profits and net profits both increased 19% year-on-year compared to a low base in the same period last
Speaker 2: for sustainable and high quality growth.
Speaker 2: Let's take a look at our financial performance, which has started to improve since mid-2022. Particularly for the fourth quarter, our revenue stabilized on a year-on-year basis following the decline in the last two quarters. We achieved year-on-year improvements in gross margins across all business segments.
Speaker 2: Non-IFRS operating profits and net profits both increased 19% year on year compared to low base in the same period last year. The improved financial results reflect our proactive initiatives coupled with an improved macro environment. Thank you for attending the Huh?
Martin Lau: The improved financial results reflect our proactive initiatives coupled with an improved macro environment. First, we executed efficiency initiatives to improve margins and promote earnings quality. These included reducing costs and sharpening business focus. Second, we made significant progress in developing new high-quality and high-potential revenue streams, such as video accounting, feedlabs, and international games. Third, for the macroenvironment, we are encouraged to see positive signals related to post-COVID recovery and regulatory normalization.
Speaker 2: First, we executed efficiency initiatives to improve margins and promote earnings quality. These included reducing costs and sharpening business focus.
Speaker 2: Second, we made significant progress in developing new high quality and high potential revenue streams such as video accounting, feedbacks and international games.
Speaker 2: Third, for the macro environment, we're encouraged to see positive signals related to post-COVID recovery and regulatory normalization.
Martin Lau: Looking forward, we're confident of our future growth potential underpinned by multiple drivers. First, we see expanding opportunities in advertising, fintech services, and games, along with continued recovery in macroeconomics. Second, we're still in the early stage of monetizing video accounts, and we're nurturing additional revenue streams, such as live-streamed e-commerce. Third, we'll continue to focus on operational efficiency and remain disciplined in resource allocation. Fourth, we have been leveraging our longstanding expertise in developing and applying AI technologies as a growth multiplier. The recent industry breakthroughs in foundation models and, consequently, in generative AI applications present exciting opportunities for us. In the next few slides, I will discuss more about some of these drivers.
Speaker 2: Looking forward, we're confident of our future growth potential underpinned by multiple drivers. First, we see expanding opportunities in advertising, fintech services and games, along with continued recovery in macro environments.
Speaker 2: Second, we're still in the early stage of monetizing video accounts, and we're nurturing additional revenue streams, such as livestreamed e-commerce.
Speaker 2: Third, we'll continue to focus on operational efficiency and remain disciplined in resource allocation. Fourth, we have been leveraging our longstanding expertise in developing and applying AI technologies as a growth multiplier. The recent industry breakthroughs in foundation models and consequently in generative AI applications.
Martin Lau: Let's start with advertising. Well, it's still early days for macro recovery in China. I'm pleased that our ad revenue returned to double-digit growth in the fourth quarter, compared to an easy base period last year. We registered positive growth in the fourth quarter, even if we take out the new contribution from video accounts and feed ads. To enforce and reinforce our growth potential as the macroenvironment improves in 2023, we have been expanding our inventories, as well as improving our capabilities to enhance conversion for advertising.
Speaker 2: I'm pleased that our ad revenue returned to double digit growth.
Speaker 2: in the fourth quarter. I'll bide.
Speaker 2: comparing to an easy base period last year.
Speaker 2: We registered positive growth in the fourth quarter even if we take out the new contribution from video attention feed apps.
Speaker 2: To enforce.
Speaker 2: enforce our growth potential as
Speaker 2: macro environment improves in 2023, we have been expanding our inventories, as well as improving our capabilities to enhance conversion for advertisers.
Martin Lau: For new ad inventories, we see strong market demand for video accounts in feed ads. We're making very good progress in ramping up revenue on the back of rapid user engagement growth and high advertiser demand. Additionally, we're increasing the ad load of Weixin official accounts and enhancing access to quality inventory in mobile ad networks. Furthermore, to drive conversion for advertisers, we have been upgrading our transactional capabilities via innovative ad formats, CRM tools for merchants, and shopping tools for users. The proportion of WeChat ad revenue generated from click-to-purchase and click-to-message ads has been increasing, and it exceeded one-third in the fourth quarter.
Speaker 2: For new ad inventories, we see strong market demand for video accounts in FitAds.
Speaker 2: We're making very good progress in ramping up revenue on the back of rapid user engagement growth and high advertisers demand. Additionally, we're increasing ad load of wasting official accounts and enhancing access to quality inventories in mobile ad network. To drive conversion for advertisers, we have been upgrading our transactional capabilities via innovative ad formats.
Speaker 2: CRM tools for merchants and shopping tools for users.
Speaker 2: The portion of Wai-shun ad revenue generated from click to purchase and click to message ads has been increasing and exceeded 1.3 in the fourth quarter.
Martin Lau: This possible trend demonstrates that advertisers increasingly recognize our differentiated capabilities in driving transactions, positioning, as well as for consumption recovery. In addition, we have been investing in our new machine learning infrastructure. We've rolled out a new ad targeting engine, enabling us to enhance conversion rates and help improve ROI for advertisers, especially for long-tail advertisers. Furthermore, the new infrastructure allows us to achieve greater processing efficiency by increasing training speed and lowering per-unit training costs.
Speaker 2: This possible trend
Speaker 2: demonstrates that advertisers increasingly recognize our differentiated capabilities in driving transactions, positioning as well for consumption recovery.
Speaker 2: In addition, we have been investing in our new machine learning infrastructure, but rolled out a new ad targeting engine enabling us to enhance conversion rates and help improve ROI for advertisers.
Speaker 2: especially for long-tail advertisers. Furthermore, the new infrastructure allows us to achieve greater processing efficiency by increasing training speed and lowering per-unit training costs.
Martin Lau: Turning to FinTech services, despite the temporary COVID impact during the fourth quarter, we expect our commercial payment business will benefit from the consumption recovery in China. This is evidenced by the strong rebound in our total payment volume growth since the beginning of 2023, on top of that. Our commercial payment business has been structurally benefiting from synergies with, As a leading transaction platform in China with several trillion RMB of GMB in 2022, AnyPrograms enables online plus offline solutions for merchants to reduce transaction friction and drive repeated sales. As a result, the proportion of commercial payment volume contributed by many programs has been increasing over time and has reached high teens percentage levels. In terms of new business development,
Speaker 2: Turning to FinTech services, despite the temporary COVID impact during the fourth quarter, we expect our commercial payment business will benefit from consumption recovery in China. This is evidenced by the strong rebound in our total payment volume growth since the beginning of 2023.
Speaker 2: On the top of macro recovery, our commercial payment business have been structurally benefiting from synergies with meaningful programs.
Speaker 2: As a leading transaction platform in China with several trillion RMB of GMB in 2022, any program enables online plus offline solutions for merchants to reduce transaction friction and drive repeated sales.
Speaker 2: As a result, the proportion of commercial payment volume contributed by mini programs has been increasing over time and has reached high teams percentage level.
Martin Lau: We're well positioned to capture further opportunities in the FinTech sector as the regulatory environment in China normalizes. For wealth management, we're expanding our user base through investor education, better services, and a broader main product line. Consumer loans and online insurance services are exploring new opportunities through close cooperation with licensed financial institutions under a new regulatory framework. James, we are now gearing up for global expansion.
Speaker 2: In terms of new business development, where wealth positions capture further opportunities in the fintech sector as the regulatory environment in China normalizes, for wealth management we're expanding our user base through investor education, better services, and a broader main product line.
Speaker 2: For consumer loans and online insurance services, we're exploring new opportunities through close cooperation with licensed financial institutions under a new regulatory framework.
Speaker 2: and online insurance services were exploring new opportunities through close cooperation with licensed financial institutions under a new regulatory framework.
Martin Lau: In the domestic market, we navigated through industry challenges during 2022 and are now well-positioned for reigniting growth. Our three key franchises have demonstrated resilience and longevity. For example, in January 2023, Honor of Kings had its best ever Chinese New Year period in terms of gross receipts, thanks to the very successful launch of new content, top quality outfits, as well as targeted offerings for players. In addition, Dungeons & Fighters delivered its strongest fourth quarter performance over the past three years, leveraging the success of game mechanics evolution to attract returning users.
Speaker 2: Okay
Speaker 2: We are now gearing up for global expansion.
Speaker 2: In domestic market, we navigated through industry challenges during 2022 and are now well positioned for reigniting growth.
Speaker 2: Our key franchises have demonstrated resilience and longevity. For example, in January 2023, All of Kings had its best-ever Chinese New Year period in terms of gross receipts, thanks to a very successful launch of new content.
Speaker 2: top quality outfit, as well as targeted offerings for players.
Speaker 2: In addition, Dungeon and Fighter delivered the strongest fourth quarter performance over the past three years, leveraging the success of gaming mechanics' evolution to attract returning users.
Martin Lau: Furthermore, we're benefiting from the normalization of banhao approval, which enables us to strengthen our game releases for 2023 and beyond. Under the new industry norm, we're sharpening our focus on launching new games. In addition to titles in high-potential genres such as Undone, we'll bring to the market new games combining popular IPs with our expertise in genres such as shooter and online chess. Meanwhile, we will publish leading international franchises such as Valorant and Lost Ark.
Speaker 2: Furthermore, we're benefiting from the normalization of Banhau approval, which enables us to strengthen our game releases for 2023 and beyond.
Speaker 2: Under the new industry norm, we're sharpening our focus on launching new games.
Speaker 2: In addition to titles in high potential genres such as Undawn, we'll bring to the market new games combining popular IPs with our expertise in genres such as shooter and all chess. Inma will publish leading international franchises such as Valorant and Mostarq.
Martin Lau: In international markets, we have made strong progress in reinforcing our growth potential over the medium and long term. Our international games revenue for the fourth quarter increased to two billion U.S. dollars, representing one-third of our games revenue. We have expanded our top franchise portfolio as Valorant goes from strength to strength with record users and revenue, and as Miniclip acquires top casual game franchises and servers. Our emerging studios have achieved initial success in their new title launches, including V Rising by Stunlock and Dark Tide by FactShark.
Speaker 2: in international markets that make strong progress in reinforcing our growth potential over the medium and long term.
Speaker 2: Our international games revenue for the fourth quarter increased to $2 billion US dollars, representing one third of our games revenue.
Speaker 2: We have expanded our top franchise portfolio as Valorant goes from strength to strength with record users and revenue, and as Miniclip acquired top casual game franchise software service.
Speaker 2: Our emerging studios have achieved initial success in their new title launches, including V-Rising by Stan Lok and Darktide by FactShark.
Martin Lau: For the next few years, we're building a strong pipeline to tap into multiple opportunities in the international markets. Notably, we're expanding our regional IPs into new platforms, markets, and genres, such as Valorant on mobile and One of Kings in international markets. We're also supporting our emerging studios to launch bigger titles with greater longevity, as well as bringing more highly acclaimed PC and console IPs to mobile devices. Now, on to video accounts, which is a key strategic growth driver. YouTube accounts continue to experience strong user engagement growth. In the fourth quarter, its total time spent reached 1.2 times that of moments.
Speaker 2: For the next few years, we're building a strong pipeline to tap into multiple opportunities in the international markets. Notably, we're expanding our regional IPs into new platforms, markets, and genres, such as Valorant on mobile and One of Kings in international markets.
Speaker 2: We're also supporting our emerging studios to launch bigger titles with greater longevity, as well as bringing more highly acclaimed PC and console IPs to mobile devices.
Martin Lau: The number of videos with over 100,000 likes more than doubled year on year. We're now building on our user engagement in short form videos to expand into live streaming services. Over the past year, we achieved rapid growth in live streaming services as we enriched our content and drove traffic for creators. In addition, we're gaining user mindshare in live events. For example, over 190 million viewers watched the 2023 CCTV Spring Festival Gala via live streaming on video accounts.
Speaker 2: Turning to video account, which is a key strategic growth driver.
Speaker 2: Ditto accounts continue to experience strong user engagement growth. In the fourth quarter, its total time spent reached 1.2 times that of moments.
Speaker 2: The number of videos with over 100,000 likes more than doubled year-to-year.
Speaker 2: We're now building on our user engagement in short fun videos to expand into live streaming services.
Speaker 2: Over the past year, we achieved rapid growth in live streaming services.
Speaker 2: as we enriched our content and drove traffic for creators.
Speaker 2: In addition, we're gaining user mindsets in live events. For example, over 190 million viewers watched the 2023 CCTV Spring Festival Gala via live streaming on video accounts.
Martin Lau: We keep up with the growing demand for merchants to conduct transactions, enhancing our e-commerce capability. These improvements led to the launch of the Video Accounts Shop, which offers a seamless shopping experience to users. We are broadening monetization opportunities in video accounts, capitalizing on the rapid expansion of short-form videos and live streaming. While live-streaming tipping revenue experienced strong growth in 2022, in-feeds at revenue are ramping up rapidly and exceeded 1 billion RMB in the fourth quarter.
Speaker 2: To keep up with the growing demand for merchants to conduct transactions, we're enhancing our ecommerce capabilities.
Speaker 2: One of these improvements is the launch of Video Accounts Shop, which offers seamless shopping experience to users. We are broadening monetization opportunities in video accounts, capitalizing on the rapid expansion in storefront videos and live streaming.
Speaker 2: While live-streaming tipping revenue experienced strong growth in 2022, infits ad revenue are ramping up rapidly and exceeded 1 billion RMB in the fourth quarter.
Martin Lau: Furthermore, we're building infrastructure for live streaming e-commerce to promote GMV growth since January of 2023. We have started charging commissions to develop a new revenue stream. To conclude the strategies section, I would like to share with you our perspective on artificial intelligence, specifically the implications of foundation models for Tencent.
Speaker 2: Furthermore, we're building infrastructure for live streaming e-commerce to promote GME growth.
Speaker 2: Since the January of 2023,
Speaker 2: we have started charging commissions to develop a new revenue stream. To conclude the strategy section, I would like to share with you our perspective on artificial intelligence, specifically the implications of foundation models for Tencent.
Martin Lau: The most important takeaway is that we expect AI to be a growth multiplier for us going forward. We have a long-standing experience in developing and adopting AI technologies, which have already benefited many of our businesses, such as advertising, games, short-form videos, and cloud computing. Recent industry breakthroughs in foundation models and, consequently, in generative AI applications are very beneficial to us as our core social and gaming businesses are user-to-user oriented and involve very premium content, which is hard to be disrupted by AI technology, which can stand the benefit of being, and hence. On the other hand, foundation models facilitate our introduction of user-to-machine services, such as digital assistants and search, which can become new growth areas for
Speaker 2: The most important takeaway is that we expect AI to be a growth multiplier for us going forward.
Speaker 2: We have a long-standing experience in developing and adopting AI technologies, which has already benefited many of our businesses, such as advertising, games, short-run videos, and cloud computing. We have a long-standing experience in developing and adopting AI technologies, which has already benefited many of our businesses, such as advertising, games, short-run videos, and
Speaker 2: Recent industry breakthroughs in foundation models and consequently in generative AI applications are very beneficial to us, as our core social and gaming experiences are user-to-user oriented and involve very premium content, which are hard to be disrupted by AI technology.
Speaker 2: industry breakthroughs in foundation models, and consequently in generative AI applications, are very beneficial to us. As our core social and gaming businesses are user to user oriented and involve very premium content, which are hard to be disrupted by AI technology, can stand the benefit of being flexible and Scriptures automaticallyAX. It's couldn't do Lineage to Communities value or none would need
Speaker 2: On the other hand, foundation models facilitate our introduction of user to machine services such as digital assistant and search, which can become new growth areas for us. As for strategies, we have been developing our foundation model and plan to gradually load out these models in the back end.
Martin Lau: As for strategies, we have been developing our foundation model and plan to gradually roll out these models at the back end, while introducing front-end use cases across our full product range. We're leveraging AI technologies to enhance our product innovation, monetization, and operational efficiency. I believe that we have strength across the entire AI value chain.
Speaker 2: while introducing front-end use cases across our full product range.
Speaker 2: We are leveraging AI technologies to enhance our product innovation, monetization, and operational efficiency.
Martin Lau: First, we have a broad range of use cases for AI via applications with deep user engagement, including Weixin, our leading game titles, our office productivity software, and our entertainment services. Second, with our long-term investment in machine learning, we have strong teams and deep expertise in technologies such as natural language processing and computer vision. Third, the breadth and depth of data accumulated in our businesses offer a strong foundation for our model training process.
Speaker 2: We believe that we have strength across the entire AI value chain.
Speaker 2: Because first, we have a broad range of use cases for AI, the applications with deep user engagement, including Wei Xin, our leading game titles, our office productivity software, and our entertainment services.
Speaker 2: Second, with our long-term investment in machine learning, we have strong teams and deep expertise in technologies such as natural language processing and computer vision. Third, the breadth and depth of data accumulated in our businesses offer a strong foundation for our model training process.
Martin Lau: Fourth, Tencent Cloud is one of the leading cloud providers in China. The scale and sophistication of our infrastructure can support the growing demand for computing power from not only our in-house products but also our client applications. Due to these competitive capabilities, we are rapidly advancing our proprietary foundation model, Hunyuan, which has strong capabilities in Chinese language processing. And with that, I'll pass to James to talk about the business review. Thank you, Martin.
Speaker 2: And fourth, Tencent Cloud is one of the leading cloud providers in China. The scale and sophistication of our infrastructure can support the growing demand for computing power from not only our in-house products but also our client applications.
Speaker 2: Building on these competitive capabilities, we are rapidly advancing our proprietary foundation model, Hunyuan, which has strong capabilities in Chinese language processing. With that, I'll pass to James to talk about the business review.
James Gordon Mitchell: So for the fourth quarter of 2022, our total revenue was up 0.5% year on year. EAS represented 49% of our revenue, within which the social network subsegment was 20%, domestic gains 19%, and international gains 10%. The ratio of international games revenue to overall games revenue, which is seasonally higher in the fourth quarter, increased from 28% in the fourth quarter of 2021 to 33% in the fourth quarter of 2022. Online Advertising is 17% of our revenue, and FinTech and Business Services is 33%. The value-added services segment revenue was 70 billion renminbi, down 2% year-on-year. Social network revenue was also down 2% year-on-year to $29 billion.
Speaker 2: Thank you, Martin. So for the fourth quarter of 2022, our total revenue was up 0.5% year-on-year. EAS represented 49% of our revenue within which the social network subsegment was 20%, domestic gains 19%, and international gains 10%.
Speaker 2: My ratio of international games revenue and rural games revenue, which is seasonally higher in the fourth quarter, increased from 28% in the fourth quarter of 2021 to 33% in the fourth quarter of 2022.
Speaker 2: Online advertising is 17% of our revenue and FinTech and business services 33%.
Speaker 2: For value-added services, segment revenue was RMB 70 billion, down 2% year-on-year.
James Gordon Mitchell: Revenue from music and game-related live streaming services decreased while revenue from video accounts for live streaming services increased, driven by more paying users as we enriched our content offering and enhanced recommendation efficiency. Our video subscription revenue increased year on year, driven by ARPU growth as we adjusted membership pricing. Video subscriptions decreased slightly due to content scheduling delays. In January 2023, we released the self-commissioned drama series, Three Body, which became the highest rated domestic science fiction series in the past five years, per the Doban Review Aggregator site.
Speaker 2: Social network revenue was also down 2% year on year to 29 billion revenue.
Speaker 2: Revenue from music and game related live streaming services decreased while revenue from video accounts live streaming service increased Driven by more paying users as we enriched our content offering and enhanced recommendation efficiency.
Speaker 2: Our video subscription revenue increased year on year driven by ARPU growth as we adjusted membership pricing. Video subscriptions decreased slightly due to content scheduling delays. In January 2023 we released the self-commissioned drama series Freebody, which became the highest rated domestic science fiction series.
James Gordon Mitchell: Music subscription revenue increased year-on-year. Pang users and ARPU grew as we offered additional membership privileges such as improved sound quality and enhanced user engagements in music genres. Domestic games revenue was down 6% year-on-year to 28 billion revenue B, reflecting lower gross receipts in the prior quarters, which flowed through to lower revenue accruals during the fourth quarter. However, gross receipts in the fourth quarter increased year on year due to higher DAU and spending per paying user.
Speaker 2: in the past five years per the Doban Review aggregator site. Music subscription revenue increased year on year. Paying users and ARP who grew as we offered additional membership privileges such as improved sound quality and enhanced user engagements in music genres.
Speaker 2: Domestic gains revenue is down 6% year-on-year to 28 billion remnib, reflecting lower gross receipts in the prior quarters, which flowed through to lower revenue accruals during the fourth quarter. However, gross receipts in the fourth quarter increased year-on-year due to higher DAU and spending by paying use up.
James Gordon Mitchell: International games revenue increased 5% year on year to 14 billion renminbi, or up 11% excluding currency movements and a true up revenue adjustment in the fourth quarter of 2021. Key franchises Valorant and League of Legends, as well as new launches Nikkei and Darktide, contributed to the revenue growth. For Weixin, total user time spent has steadily increased through 2022, driven by growth in time spent for both chat and non-chat use cases.
Speaker 2: International games revenue increased 5% year on year to 14 billion RMB, or up to 11% executing currency movements and a true revenue adjustment, right in the fourth quarter of 2021. The franchise's Valorant and League of Legends, as well as new launches Nikkei and Darktide, contributed to the revenue growth.
Speaker 2: For Wei Xin, total user time spent has steadily increased through 2022, driven by growth in time spent for both chat and non-chat use cases. Among the non-chat use cases, the moment content sharing feature, which accounted for the majority of Wei Xin's non-chat time spent in the fourth quarter of 2021.
James Gordon Mitchell: Among the Nunchak use cases, the Moments content sharing feature, which accounted for the majority of Weixin's Nunchak time spent in the fourth quarter of 2021, remains the Chinese leader in the social category, with Moments time spent stable year-on-year in the fourth quarter of 2022. However, users have also diversified and expanded their non-chat activities within Weixin. User time spent in mini-programs approximately doubled year-on-year in the fourth quarter, surpassing time spent in moments, as more users activated mini-programs more frequently, especially content and productivity in the program, and user time spent in video accounts more than tripled year-on-year in the fourth quarter, also surpassing time spent in moments. For QQ, we added Super QQ Show avatars and video chats to provide a fun Utilizing motion capture technology, the avatars can mirror users' facial expressions and gestures in real time during video calls.
Speaker 2: approximately doubled year on year in the fourth quarter, surpassing time spent in moments, as more users activated mini programs more frequently, especially content and productivity programs. And user time spent in video accounts more than tripled year on year in the fourth quarter, also surpassing time spent in moments. For QQ, we added SuperQQ show avatar to video traps provide fun and life-like interactive experience.
James Gordon Mitchell: Mini World, the short-form video service within QQ, enriched its anime content, games content, and launched AI-powered video creation tools. DAU and time spent per user significantly increased year-on-year. Moving to domestic games, as Martin has already discussed, key games such as Honor of Kings and Dungeon Fighter have performed well in recent months. In February, we launched UNDAWN to tap into the emerging survival open world crafting genre. Featuring high-fidelity graphics and immersive experiences, UNDAWN ranks first by gross receipts among new mobile games released in China year-to-date.
Speaker 2: increased year on year.
Speaker 2: Moving to domestic games, as Martin has already discussed, key games such as Honor of Kings and Dungeon and Fighter have performed well in recent months. In February , we launched Undawn to tap into the emerging survival open world crafting genre. Featuring high fidelity graphics and immersive experiences, Undawn ranks first by gross receipts among new mobile games released in China year to date.
James Gordon Mitchell: Looking at international games, League of Legends gross receipts increased year-on-year this quarter, due to the use of the Battle Pass and Creative Outfit series tied into the World Championship Finals. Saturn's MAU and gross receipts grew year-on-year as players responded to its new age and best-of-nine game mode. While PUBG Mobile's gross receipts declined year-on-year, the rate of decline improved notably versus prior quarters, on an easier base effect, and as innovative outfit designs appealed to players.
Speaker 2: Looking at international games, League of Legends gross receipts increased year on year this quarter due to a battle pass and creative outfit series tied into the World Championship Finals. Valorant's MAU and gross receipts grew year on year as players responded to its new age of best of nine game mode.
Speaker 2: While Pup G Motovar's gross receipts declined year on year, the rate of decline improved notably versus prior quarters on an easier best effect than its innovative outfit designs appealed to Fayil's.
James Gordon Mitchell: Port of Duty Mobile celebrated its third anniversary with World Cup-themed content, new Battle Royale play, and top-tier outfits, contributing to increased gross receipts. Among new releases, Nikkei was the top title internationally by gross receipts among all new mobile games released in 2022. We recently added a PC version of it.
Speaker 2: Board of Duty Mobile celebrated its third anniversary with World Cup themed content, new battle royale play and top tier outfits contributing to increased gross receipts.
Speaker 2: Among new releases, Nick A was the first place titled internationally by gross receipts among all new mobile games released in 2022.
James Gordon Mitchell: Warhammer 40,000 Darktide, a co-op action shooter PC game developed by our subsidiary FatShark, was ranked by Steam among its top new releases for the year. Moving to online advertising, our advertising revenue was 25 million renminbi in the fourth quarter, up 15% year-on-year. The resumption of year-on-year revenue growth was driven by demand for our video accounts, in-feed ads, and reprogram ads, upgraded performance for our mobile ad network, and an enhanced machine learning infrastructure, powering more effective matching of users and advertisers.
Speaker 2: We recently added a PC version of Nikkei.
Speaker 2: Warhammer 40,000 Darktide, a co-op action shooter PC game developed by our subsidiary Fatshot was ranked by Steam among Steam's top new releases for the year.
Speaker 2: Moving to online advertising, our advertising revenue is 25 billion RMB in the fourth quarter, up 15% year on year.
Speaker 2: The resumption of year-on-year revenue growth was driven by demand for our video accounts, in-feed ads and e-program ads, upgraded performance for our mobile ad network and an enhanced machine learning infrastructure powering more effective matching of users and advertisers.
Speaker 2: By category, ad spend from e-commerce platforms, fast-moving consumer goods, and game advertisers increase in ad spend from e-commerce platforms, fast-moving consumer goods, and game advertisers
James Gordon Mitchell: By category, ad spend from e-commerce platforms, fast-moving consumer goods, and game advertisers increased notably year-on-year. Our social and other advertising revenue in the fourth quarter was 21 billion renminbi, up 17% year-on-year. We experienced substantial demand for video account ads, prompting us to release more inventory. Video accounts in feed ads exceeded 1 billion renminbi in core key revenue. Many programs are being bravely increased with higher adoption of rewarded video formats.
Speaker 2: Our social and other advertising revenue for the fourth quarter was 21 billion remnib up 17% year-over-year. We experienced substantial demand for video accounts ads, prompting us to release more inventory and video accounts in feed ads exceeded 1 billion remnib being quality revenue.
James Gordon Mitchell: Our mobile ad network resumed year-on-year revenue growth due to improved conversion rates and increased adoption of the bidding mechanism. Our media advertising revenue for the fourth quarter was 3 billion RMB, top 4% year-on-year. Looking at FinTech and business services.
Speaker 2: Many programs add revenue increase with higher adoption of rewarded video format.
Speaker 2: Our mobile ad network resumed year-on-year revenue growth to improve conversion rates and increase adoption of the bidding mechanism. Our advertising for the fourth quarter was 3 billion for MMB, up 4% year-on-year.
James Gordon Mitchell: Segment revenue was 47 billion renminbi in the quarter, down 1% year-on-year, though up 5% quarter-on-quarter. FinTech services revenue grew slightly both year on year and quarter on quarter. Our average daily commercial payment volume declined quarter-on-quarter in the fourth quarter as COVID-19 outbreaks temporarily suppressed consumption activity, but it has rebounded to a robust year-on-year growth rate quarter-to-date in the first quarter, benefiting from resumed consumption activity. The business services revenue declined year-on-year, while gross profit increased as we reduced loss-making activities, optimized costs, and focused on our self-developed platforms of
Speaker 2: Looking at things like business services.
Speaker 2: Segment revenue was 47 billion renminbi in the quarter, down 1% year on year, though up 5% quarter on quarter. Tech services revenue grew slightly both year on year and quarter on quarter.
Speaker 2: Our average daily commercial payment volume declined quarter on quarter in the fourth quarter as COVID-19 outbreaks temporarily suppressed consumption activity, but has rebounded to a robust year-on-year growth rate quarter to date in the first quarter, benefiting from resumed consumption activity. The business services revenue declined year-on-year while gross profit increased.
Speaker 2: as we reduced loss-making activities, optimized costs, and focused on our self-developed platforms and service offerings.
James Gordon Mitchell: Within business services, we're actively helping automobile manufacturers, such as NIO, BMW, and GAC Motor, enhance their IT infrastructure and product offerings in areas such as smart cockpit solutions, digital maps, and data management. Now I'll pass to John for the financials. Thanks, Jay.
Speaker 2: Within business services, we're actively helping automobile manufacturers such as Neo, BMW, and GAC Motor enhance their IT infrastructure and product offerings in areas such as smart cockpit solutions, digital maps, and data management.
Shek Hon Lo: For the fourth quarter of 2022, total revenue was $145 billion. Lastly, stable year-on-year, gross profit was 61.9 billion RMB, up 7% year-on-year. Net other gains were 85.8 billion RMB last year-on-year. This was mainly due to a 106.6 billion RMB gain from kidney disposal on May 25, offset by impairment provisions on certain investors. Operating profit was 116.8 billion renminbi, up 6% year-on-year. Net finance costs were 3.7 billion renminbi, up 96% year-on-year.
Speaker 2: And now I'll pass to John for the financial review. Thanks, Jay. For the fourth quarter of 2022, total revenue was $145 billion.
Speaker 3: lastly stable year on year. Gross profit was 61.9 billion RMB up 7% year on year. Net other gains was 85.8 billion RMB lastly spread year on year. This was mainly due to 106.6 billion RMB gain from kidney disposal of May 1 of the upset by impairment provisions on certain trustees.
Speaker 3: Operating profit was 116.8 billion RMB up 6% year-on-year. Net finance costs were 3.7 billion RMB up 96% year-on-year. Year-on-year change was due to foreign exchange losses in Korea. This quarter was the skin gain for quarter of 2021.
Shek Hon Lo: Year-on-year change was due to foreign exchange losses, including this quarter, which is getting closer to the quarter of 2021. The share of losses of Associates and Joint Ventures was $1.6 billion RMB on an all-nine-hour basis. Share of profit was $3.1 billion RMB versus share of losses of $0.8 billion RMB last year. This improvement reflects better profitability of Australian domestic associates as a result of their cost optimisation initiatives. Income tax expense increased by 18% year-on-year to 4.6 billion RMB in line with higher profit and an increase in holding tax, for which IVRF, that product attributed to the equity holdings, was 106.3 billion RMB, up 12% year-on-year. Addited EPS was 10.977 RMB, up 12% year-on-year. Now, I'll share our non-I-virus financial figures.
Speaker 3: She had losses of associates and joint ventures was 1.6 billion RMB on a non-I
Speaker 3: This improvement reflects the better profitability of Australian domestic associates as a result of their cost optimization initiatives.
Speaker 3: Income tax expense increased by 18% year-to-year to 4.6% in renminbi in line with higher profit and increased recruiting tax provision.
Speaker 3: I've RF that product attributed with the equity holders was 106.3 billion remnB up 12% year-on-year. The TIP EPS was 10.977 remnB up 12% year-on-year.
Shek Hon Lo: For the fourth quarter, operating profit was 39.4 billion RMB, up 19% year-on-year. Net profit attributable to equity holders was 29.7 billion RMB, up 19% year-on-year. Valued-to-BPS was 3.042 RMB, up 19% year-on-year. Moving on to gross margins for the fall quarter, overall gross margin was 42.6%, up 2.5 percentage points year-on-year. Gross margin for value-added services was 49.8%, up 1.1 percentage points year-on-year. The year-on-year margin increase was last year driven by a favorable shift in revenue.
Speaker 3: Now I'll share our non-I virus financial figures. For the fourth quarter, operating profit was 39.4 billion RMB up 19% year-on-year. And profit attributable to equity holders was 29.7 billion RMB up 19% year-on-year. That little EPS was 3.042 RMB up 90% year-on-year.
Speaker 3: Moving on to gross margins, for the fourth quarter overall gross margin was 42.6% up 2.5% point year on year. Our segment gross margin for value added services was 49.8% up 1.1% point year on year. Year on year margin increase was largely driven by favorable shift in revenue base.
Shek Hon Lo: The gross margin for online advertising was 44.2%, up 1.5% point year-on-year. The year-on-year margin was mostly due to the strong demand for video accounts and apps, which led to a faster growth in revenue compared to cost. Gross margin for FinTech and business services was 33.6%, up 6.5 percentage points year-on-year.
Speaker 3: The cost margin for online advertising was 44.2%, up 1.5% at 40 year-to-year margin.
Speaker 3: So as most individuals from the mindful video accountancy act, it's left to a faster growth in revenue compared to cost.
Speaker 3: First margin for FinTech and business services was 33.6%, up 6.5 percentage points year-on-year. The year-on-year margin improvement was driven by cost rationalization and efficiency improvement, as well as lower crowd project deployment costs as we scale back loss making activities. An operating status.
Shek Hon Lo: The year-on-year margin improvement was driven by our cost rationalization and efficiency improvement, as well as lower crowd project deployment costs as we scaled back loss-making activity. For operating expenses, selling and marketing expenses were 6.1 billion renminbi, representing 4.2% of revenues. This reflects a decline of 47% year-on-year due to tighter spending on marketing activities across our organization. And the expense was 15.9 billion RMB, up 14% year-on-year as we continue to invest in strategic areas in both domestic and international markets. DNA expenses, excluding R&D, were $11.4 billion RMB.
Speaker 3: The selling of marketing expenses was $6.1 billion representing 4.2% of revenues. This reflects the decline of 47% in years due to tightness spending on marketing activities across our organization.
Speaker 3: R&D expense was R$15.9 billion, up 14% a year as we continue to invest in strategy areas in both domestic and international markets.
Shek Hon Lo: The year-on-year increase was mainly driven by higher expenses incurred by some of our overseas subsidiaries. At quarter end, we had approximately 10,000... 108,000 employees that will focus on you on your or broadly stable quarter and quarter. Let's look at our operating and net margin ratios. For the fourth quarter, our coronavirus operating margin was 27.2%, up 0.2 percentage points year-on-year. So in iVirus, that margin was 21.1%, up 3.2 percentage points year-on-year. Now, let's discuss earnings, shares, and division.
Speaker 3: DNA expenses for recruiting RMB was 11.4 billion RMB. The year-on-year increase was mainly driven by high expenses incurred by some of our overseas subsidiaries.
Speaker 3: As a quarter end, we had approximately 108,000 employees.
Speaker 3: down 4% year on year or broadly stable quarter-to-quarter.
Speaker 3: Let's look at our operating and net margin ratios. For the fourth quarter, non-IOVR's operating margin was 27.2% up 0.2 percentage points year on year. Non-IOVR's net margin was 21.1% up 3.2 percentage points year on year. Let's discuss earnings, share, and dividends. For 2022, IOVR's basic year was 19.2% up 0.2 percentage points year on year.
Shek Hon Lo: For 2022, iVirus's basic EPS was 19.757 RMB, diluted EPS was 19.341 RMB, non-virus-based EPS was 12.138 RMB, and diluted EPS was 11.835 RMB. On the 16th of November 2022, we announced a special interim dividend in the form of a distribution specialty of May 20 years. Subject to the shareholders' approval at the upcoming 2023 AGM, we are proposing an annual dividend of HKD 2.4 per share, up 50% year-on-year. Our annual dividend will be payable to shareholders on the 5th of June 2023.
Speaker 3: to interim dividend in the form of distributing a subsidy of May 20th.
Speaker 3: Shuptake to the shareholders approval at the upcoming 2023 AGM, we are proposing an annual dividend of $100.24 here.
Speaker 3: Up 50% year on year. Our annual dividend will be payable to shareholders on the 6th of June , 2023.
Shek Hon Lo: To conclude, I will highlight some key cash flow and balance sheet metrics for Q4. Total capex was 5.7 billion RMB, down 52% year-on-year. Within total operating capex was 1.9 billion RMB, down 76% year-on-year or up 80% quarter-on-quarter. The year-on-year decline reflects our efforts to reassess and tighten our spanning. These sequential increases may be driven by higher capex and servers in the fall quarter. Operating capex grows by 4% year-on-year and 184% year-on-year due to 3.8 billion RMB, sequential increases due to additional expenditure on office buildings.
Speaker 3: To conclude, I will highlight some key cash flow and balance sheet metrics for quarter four. Total cap-tax was 5.7 billion remand beat down, 52% year-on-year. Within total cap-tax, operating cap-tax was 1.9 billion remand beat down, 76% year-on-year up 80% quarter-on-quarter.
Speaker 3: 84% Q1Q2, 348,000 RMB.
Shek Hon Lo: Free cash flow for the quarter was 23.1 billion RMB, down 31% year-on-year. The year-on-year decline was mostly due to lower operating cash flow, partly compensated by decreased payment for cutbacks and media content due to cost optimization. The net debt coefficient was 14.8 billion renminbi compared to 27.3 billion renminbi in the previous quarter. The sequential improvement in our net deposition was due to a pre-cash flow generation by the offset by payments for the repurchased tenancy shares. Thank you.
Speaker 3: The sequential increase was due to additional expenditure on office buildings.
Speaker 3: Free cash flow for the quarter was 23.1% renminbi down 31% year-on-year. The year-on-year decline was mostly due to lower operating cash flow, partly compensated by decreased payment for cutbacks and media content due to cost optimization.
Speaker 3: Net debt position was 14.8% renminbi compared to 27.3% renminbi in the previous quarter. The sequential improvement in our net debt position was due to a free cash flow generation by the offset by payments for the repurchase spending shares.
Unknown Executive: Thank you, John. We can now open the floor for questions. If you are dialing in by phone, please press 5 to raise questions, then press 6 to unmute yourself. If you are accessing from the Tencent meeting or room meeting application, please click the raise hand button at the bottom left.
Speaker 1: Thank you, John . We shall now open the floor for questions. If you are dialing in by phone, please press 5 to raise questions, then press 6 to unmute yourself. If you are accessing from the Tencent meeting or room meeting application, please click the raise hand button at the bottom left.
Unknown Executive: We will now take one main question and one follow-up question each time. The first question comes from Kenneth Fong from the credit system.
Speaker 1: We will now take one main question and one follow-up question each time. The first question comes from Kenneth Fong from Credit Suisse.
Kenneth Fong: Hi, good evening, management. Thank you for the opportunity to ask questions.
Kenneth Fong: My first question is about the advertising recovery trend, with macro improving and our algorithm and ecosystem upgrade driving higher ROI. What should we think about the pace of ad recovery over the next few quarters? In particular, which are the key verticals that you see a stronger performance in, where we are gaining share, and which verticals are generally? And my follow-up question is on the global AI race and the chat GPT products run by our peers globally and domestically.
Speaker 4: Hi, good evening management. Thank you for the opportunity to ask questions. My first question is about advertising recovery trend. With macro improving and our algorithm and ecosystem upgrade driving higher ROI, how should we think about the pace of ad recovery over the next few quarters?
Kenneth Fong: Management just shared some competitive things for Tencent. Would you mind sharing more about the opportunities, use cases, such as AIGC, online gaming, cloud products, etc.? In particular, with a high computing power GPU being the constraint, how should we think about the product priority, either on the 2B side or the 2C side? And how should we think about the share of our financial benefits over the next few years? Thank you.
Speaker 4: globally and domestically. Management just shared some competitive things for Tencent. Would you mind share more about the opportunities, use cases such as for AIGC, online gaming, cloud products, etc. In particular with a high computing power, GPU being the constraint.
Speaker 4: how should we think about the product priority, either to on the 2B side or the 2C side, and how should we think about the pace of our financial benefits over the next few years. Thank you.
Unknown Executive: Thank you for the questions, Kenneth. I'll take the first one on the advertising outlook and on specific advertiser categories. So in terms of the overall outlook, we believe that advertisers are generally cautiously optimistic about a Chinese consumption recovery this year. In more detail, companies that sell low-ticket price items are seeing a broad-based recovery already. For companies that sell higher-ticket priced items, it varies category by category, but they're all aware that Chinese consumers have built up substantial excess savings in the past three years. And so at some point, there'll be the opportunity to tap into those savings.
Speaker 2: Thank you for the questions Kenneth. I'll take the first one on the advertising outlook and on specific advertiser categories. So in terms of the overall outlook, we believe that advertisers are generally cautiously optimistic on a China consumption recovery goals that are being placed on the selling price realm. It's thederapy of this term.
Speaker 2: Companies that sell low ticket price items are seeing a broad-based recovery already. For companies that sell higher ticket price items, it varies category by category, but they're all aware that China consumers have built up substantial excess savings in the past three years.
Unknown Executive: There are also some factors that are benefiting Tencent in particular, you know. We see there's great demand to advertise in the short-form video format to consumers who previously weren't reachable in the short-form video format, and, you know, from that perspective, our video accounts are highly appealing because many of the viewers of video accounts are not viewers of Douyin or Kuaishou or other existing short-form videos. We see, you know, great desire among certain categories of advertisers. For example, a luxury product to advertise in a format where they actually own the relationship with the consumer as opposed to being intermediated.
Speaker 2: So at some point there will be the opportunity to tap into those savings. There are also some factors that are benefiting Tencent in particular. We see there is great demand to advertise in the short form video format to consumers who previously weren't rich but in short form video format.
Speaker 2: great desire among certain categories of advertisers, for example, luxury products.
Speaker 2: to advertise in a format where they actually own the relationship with the consumer as opposed to being intermediated. And so for those advertisers the mini program inventory is very attractive. And then also as we see the broader economy turning around there are certain advertiser categories who are extremely price sensitive.
Unknown Executive: And so, for those advertisers, the mini program inventory is very attractive. And then also, as we see the broader economy turning around, there are certain advertiser categories who are extremely price sensitive. And for those advertisers, our mobile ad network has very low revenue per thousand impressions, a natural destination for spending. In terms of advertiser categories, we mentioned in the prepared remarks that we see particularly robust contributions from e-commerce platforms, from fast-moving consumer goods, and from games.
Speaker 2: And for those ad sizes, our mobile ad network that has very low revenue per thousand impressions.
Speaker 2: as a natural destination for spending. In terms of advertiser categories, then we mentioned in the prepared remarks that we see particularly robust contributions from e-commerce platforms, from fast-moving consumer goods, from games. And I think part of that is macro, part of that is more company specific.
Unknown Executive: And I think part of that is macro, part of that is more company specific. So for e-commerce, we see some big e-commerce companies who used to advertise less on us in the past have become much more active in recent months. For games, because of the popularity of mini games within Weixin, there are increased opportunities for app-based game companies to reach people who are already playing a different kind of game. And then for fast-moving consumer goods companies, they find the click-to-purchase opportunity within Weixin inventory to be highly effective and aligned with their needs. So that's the advertising question. Now in terms of the chat, UBT, and AI, I think in our prepared remarks, we did talk about our thinking, and I'll highlight a couple right now.
Speaker 2: for app-based game companies to reach people who are already playing a different kind of game. And then for fast-moving consumer goods companies, they find the click-to-purchase opportunity within which an inventory are highly effective and aligned with their needs.
Speaker 2: So that's on the advertising question. Now in terms of the chat, GPT and AI, in our prepared remarks we did talk about our thinking and I'll highlight a couple right now. The first one is like we do believe that this is a growth multiplier for us. We believe that this is a growth multiplier for us.
Unknown Executive: The first one is like, we do believe that this is a growth multiplier for us. And the reason is because our businesses are actually primarily in... The social and communication and gaming business means that it's primarily user-to-user and it involves very high-quality content, and as a result, these are businesses that can be supplemented by these generative AI technologies and the foundation model technologies, but they are not necessarily that easily disrupted by such technology, not like the user-to-user machine experiences like search.
Speaker 4: And the reason is because our businesses are actually primarily in
Speaker 2: The social and communication and gaming business, which means that it's primarily user to user and it involves very high quality content and as a result, these are businesses which can be supplemented by...
Speaker 2: these generative AI technologies and the foundation model technologies, but they are not necessarily that easily disrupted by such technology, not like the user to machine experiences like surge.
Unknown Executive: And as a result, the strategy that we'll be taking is that we'll definitely be investing a lot of resources in building our foundation model because we feel that this is something that will add to each one of our business lines in the future. And at the same time, it can actually help us to launch new businesses going forward and take our strength from user to user into the user to machine arena.
Speaker 2: And as a result, the strategy that we'll be taking is that we'll definitely be investing a lot of resources in building our foundation model because we feel that this is something which will add to each one of our business lines in the future. And at the same time, it can actually also help us to launch new business.
Unknown Executive: And our strategy is that we will try to do it right rather than do it in a rush. We want to make sure that the foundation of the foundation models is actually built correctly and on solid footing. The first release, in our view, is actually one of the many iterations that we will be launching.
Speaker 2: of the foundation models are actually built correctly and on solid footing. The first release in our view is actually one of the many iterations that we will be launching. It's a long-term game and it involves a very iterative process.
Unknown Executive: So it's a long-term game, and it involves a very iterative process. We also believe that ChatBot is one of the many applications that we'll be launching going forward. So, it is a business opportunity that we can actually build over time, and not a business threat that we have to tackle immediately. And that actually allows us to be able to focus our resources but, at the same time, build our capabilities and build our models in a sustainable way.
Speaker 2: We also believe that Chatbot is one of the many applications that we'll be launching going forward. So it is a business opportunity that we can actually field over time, and not a business threat that we have to tackle immediately. And that actually allows us to be able to focus our resources, but at the same time, uh,
Unknown Executive: And we do believe we have a lot of competitive capabilities to build it right. As I've mentioned, we have use cases, we have data, we have a very strong cloud computing infrastructure, and we also have a long-standing history of building AI applications to supplement our existing businesses. In terms of the infrastructure, we do have enough and the required amount of chips to actually create the model. That's not a problem.
Speaker 2: build our capabilities and build our models in a sustainable way. And we do believe we have a lot of competitive capabilities to build it right. As I mentioned, we have use cases, we have data, we have a very strong cloud computing infrastructure, and we also have a long-standing...
Speaker 2: history of building AI applications to supplement our existing businesses. In terms of the infrastructure, we do have enough and required amount of chips to actually create the model. That's not a problem.
Unknown Executive: And more importantly, we felt that we actually had a very strong cloud business, and the relevant technology was to really arrange and make use of the chips in a scalable and high-density way so that we can create very large clusters of chips that can really deliver the performance that's needed to train these very large models, especially when the models get more and more sophisticated over time after a few iterations. In terms of the commercial prospect, I think, you know, as we have alluded in our prepared remarks, it's a growth multiplier, so that means it will improve our existing businesses along the line of improved monetization. Imagine advertising can actually be improved with generative content, which is highly targeted to the users. That can be very, very effective in conversion. It can actually increase efficiency.
Speaker 2: And more importantly, we actually have a very strong cloud business and the relevant technologies to really arrange and make use of the chips in a scalable and high density way so that we can create very large clusters of chips that can really deliver the performance that's needed to train these very large models.
Speaker 2: of improved monetization. Imagine advertising can be actually improved with the generative content, which is highly targeted to the users. That can be very, very effective in conversion. It can actually increase efficiency. Imagine a lot of our content platforms and content business can actually make use of these tools to generate content.
Unknown Executive: Imagine a lot of our content platforms and content businesses can actually make use of these tools to generate content for both the creators as well as for ourselves on a much more cost-efficient basis, and the user experience can be much more engaging. And at the same time, I think, as we said, we also look at new business opportunities, and for these new opportunities, I think, you know, the business models will probably evolve over time, just like in the history of the Internet. You first of all create something that's useful, and over time, you think about the right business model. But without it, this is actually a very exciting opportunity. Thank you very much, Martin and James. Thank you.
Speaker 2: for both the creators as well as for ourselves on a much more cost-efficient basis. And the user experience can be much more engaging. And at the same time, I think, as we said, we also look at new business opportunities. And for these new opportunities, I think the business models will probably evolve over time just like in the history of In event.
Unknown Executive: Thank you. The next question is Alicia Yap from Citi. Hi, can you hear me okay? Okay, good.
Alicia Yap: Good evening, management. Thanks for taking my questions. Two questions. Number one, related to your cloud business, can management share more details of whether the strategic shift of reducing the lower margin business is largely behind us? And is it fair to assume that we will see growth gradually normalizing with a faster rebound of the business and higher margins in the second half of this year? And then, second question, just a follow up on the AI.
Speaker 5: Thank you.
Speaker 6: Hi, can you hear me okay?
Speaker 1: Okay, good evening management. Thanks for taking my questions. Two questions. Number one, related to your cloud business, can management share more details of whether the strategic shift of reducing the lower margin business are largely behind us?
Speaker 1: And is that fair to assume that we will see growth gradually normalizing with faster rebound of the business and higher margins in the second half of this year? And then second question, just a follow up on the AI. So do we have any plans to incorporate?
Alicia Yap: So do we have any plans to incorporate this generative AI technology into Weixin and also the QQ app in the coming future? And how would the foundation model convert to higher revenue growth opportunities? Thank you. In terms of cloud, I think, you know, you actually
Speaker 1: this generative AI technology into Wasing and also the QQ app in the coming future? And how would the foundation model convert to the higher revenue growth opportunity? Thank you.
Unknown Executive: In terms of cloud, I think you actually have answered your questions pretty well right now. I think, you know, the optimization shifts. It's largely over. It's a pretty painful process.
Speaker 2: In terms of cloud, I think you actually have answered your questions pretty well right now. The optimization shift.
Unknown Executive: After the entire effort, I think, you know, the business is actually in a much more sustainable and much higher quality state. And yes, we will see more with the, With the business coming into the right shape, we'll see normalizing growth, and now it's time for the business to push for higher growth. And after the strategic shift, I think we now have a business with an organization that's much more focused, nimble, and efficient.
Speaker 2: It's largely over. It's a pretty painful process.
Speaker 2: after the entire effort, I think the business is actually in a much more sustainable and much higher quality state. And yes, we will see more with the business coming into the right shape, we will see normalizing growth.
Unknown Executive: We have a product mix that is focused on high-margin, high-value ads, as well as self-developed and recurring revenue. And at the same time, I think the operational procedure of the business has been improved in that we're much more capable of managing the costs for the highest part of the business as well as delivering better services to our customers. So I think the quality of the overall business has improved, and we're now in the right mode of pursuing high growth, especially for the second half of 2023.
focused on high margin, high value add, as well as self-developed and recurring revenue. And at the same time, I think the operational procedure of the business has been improved in that we're much more capable in managing the cost for the highest part of the business and delivering traction as well as delivering
better services to our customers. So I think the quality of the overall business has improved and we're now in the right mode for pursuing high growth especially for the second half, 2023. Now in terms of the Genity AI,
Unknown Executive: Now in terms of generative AI, it's definitely natural, right, for us to incorporate some of these technologies into our flagship products like Weixin and QQ. And you know, we can actually improve the efficiency of the user experience. For example, we can actually allow mini-program developers to develop mini-programs at a much faster rate with these generative AIs. So that's, you know, in the category of content generation. And we can also improve our customer service for our flagship products so that each one will have a customer service assistant behind it, right?
It's definitely natural for us to incorporate some of these technologies into our flagship products like Weixin and QQ. We can actually improve the efficiency of the user experience.
For example, we can actually allow mini program developers to develop mini programs at a much faster rate with these generative AIs. So that's in the category of content generation. And so we can also improve customer service.
for our Flexi products so that each one will have a customer service assistant behind it. These are all possible. And at the same time, if you think about on the front end, if there is a very good chatbot service that we develop, then we can easily...
Unknown Executive: These are all possible. And at the same time, if there is a very good chatbot service that we develop, then we can easily incorporate intuition and QQ so that it enjoys the large distribution and customer reach of these platforms. So there are a lot of possibilities going forward. And that's why we call it a growth multiplier.
incorporated in Suation and QQ so that it enjoys the large distribution and custom reach of these platforms. So there's a lot of possibilities going forward and that's why we call it a growth multiplier for us.
Robin Zhu: The next question comes from Robin Zhu from Boston.
Thank you. Thank you. This question comes from Wubbing Zhu from Western.
Robin Zhu: Hi, thanks for taking my question. If I may, my first question is on live streaming e-commerce.
Hi, thanks for taking my question. If I may have my first question on live streaming e-commerce. I mean if I look at some of your peers this is typically quite an ops heavy business in terms of having teams doing whether it's customer service logistics you know things like that. Tencent is historically not done.
Robin Zhu: I mean, if I look at some of your peers, this is typically quite an operationally heavy business in terms of having teams doing, whether it's customer service, logistics, you know, things like that. However, Tencent has historically not done all heavy businesses as much. We'd love to hear some of your thoughts on whether that's a new direction that the company plans to head in and what that implies in terms of head count or any kind of investment in that direction.
ops heavy businesses as much. We'd love to hear some of your thoughts on, you know, whether that's a new direction that the company plans to head in, what that implies in terms of headcount or kind of investment in that direction. And then another follow up, if I may, on, you know, AIGC and so on.
Robin Zhu: And then another follow-up, if I may, on, you know, AIGC and so on. We've seen OPEX as a whole decline now for a couple of quarters. We would love to hear your thoughts on how that sort of interplays with some of the new investments, whether it's AIGC, whether it's overseas gaming. Are we at the point of Peak Cost Cutting, or does management think there's more room to go in the coming quarters given the costs associated with these large models? Thanks for the question. In terms of
We've seen OPEX as a whole decline now for a couple of quarters. We'd love to hear your thoughts on how that sort of interplays with some of the new investments, whether it's AIGC, whether it's overseas gaming. Are we at the point of peak cost cutting, or does management think there's more room to go in the coming quarters?
Unknown Executive: Thanks for the question. In terms of live streaming e-commerce, we do believe this is a good opportunity for video accounts to develop over time. But I actually emphasize the word over time. So our plan is actually to grow it on a consistent, measured, and high-quality basis. So it is true that in the e-commerce business, you actually need to have heavier life operations. And we do intend to put in a heavier life operation to support this. But at the same time, we emphasize, one, that it is actually profitable, right? So, you know, even if you put in the life..., operations.
I actually emphasize the word over time. So our plan is actually to grow it on a consistent, measured, and high quality basis. So it is true that in e-commerce businesses you actually need to have heavier life operations. So we need to make It a naturalARR Christy Royster, said it earlier, she said, If you are successful marketing a standing product, you can hopefully do this, and h today's We ve gotsters who use their last choose devil s
And we do intend to put in a heavier life operation to support this.
But at the same time, we emphasize one that it is actually profitable, right? So even if you put in the life operations.
Unknown Executive: The cost is going to be small compared to the potential benefits, but more importantly, the way that we're doing it will be, I think, much more thoughtful, much more efficient in the sense that we will try to focus on the high quality merchants and high quality product categories, which means that the life ops associated with these will actually be less because, you know, a lot of times the life ops are actually focused on solving problems. And when we actually focus on high quality, there will be fewer problems. We'll be much more focused on creating tools so that a lot of these LiveOps can actually be executed by tools.
You know, the cost is going to be small compared to the potential benefits. But more importantly, the way that we're doing it will be, I think, much more thoughtful, much more water- brilliant,
efficient in the sense that we will try to focus on the high quality merchants and high quality product categories which means that
The life ops associated with these would be actually less because a lot of times the life ops is actually focused on solving problems and when we actually focus on high quality the problems will be fewer. We would be much more focused on creating tools so that a lot of these...
Unknown Executive: And as a matter of fact, AIGC will be very helpful in that regard. And if we want to grow it in a very, very fast manner, then maybe you just have to bring in a lot of people. But if we actually sort of stretch it over time, then we can actually build the tools to make our operations more efficient. And we'll also leverage our existing infrastructure, such as mini programs, such as existing brands who are already selling on our mini programs to make sure that we know these merchants, and as a result, the amount of live operations will actually be less and more efficient. So that's sort of the way we are going to tackle the problem.
LiveOps can be actually executed by tools. And as a matter of fact, the AI GC will be very helpful in that regard. And if we want to grow it in a very, very fast manner, then maybe you just have to load in a lot of people. But if we actually sort of stretch it over time, then we can actually build the tools.
to make our operations more efficient. We'll also leverage on our existing infrastructure such as mini programs, such as existing brands who are already selling on our mini programs to make sure that we know these merchants and as a result, the amount of operations will be actually less and more efficient.
Unknown Executive: And Robin, I think your second question was around where we are in the cost management cycle, and specifically whether overseas game investments or AIGC investments will cause substantial upward pressure on cost space. So, we believe we'll be structurally more disciplined and cost conscious going forward than we've been in the recent past. And we don't think that, you know, either of the factors you identified will change that trajectory.
That's sort of the way we are going to tackle the problem. And Robin, I think your second question was around where we are in the cost management cycle and specifically whether overseas game investments or AIGC investments will cause substantial upward pressure to be cost-based. So...
We believe we'll be structurally more disciplined and cost-conscious going forward than we've been in the recent past.
Unknown Executive: In terms of international games, then, you know, we've very clearly been investing and, in fact, acquiring studios through the slow period in the last 12 months. And, you know, those investments are paying off quite nicely. You can see that our international game business is now half the size of our Chinese game business, and we've had a number of, you know, successful international game releases, both from bigger, better-established studios such as Riot and Valorant but also from, you know, small up-and-coming studios such as V Rising from Stunlock. So we'll continue investing in international games, but that's a business-as-usual investment. It's not a disruptive new investment from our perspective.
And we don't think that either of the factors you identified change that trajectory. In terms of the international games, we've very clearly been investing and in fact acquiring studios through the slow period in the last 12 months.
you know those investments are paying off quite nicely. You can see that our international game business is now half the size of our China game business and we've had a number of you know successful international game releases both from bigger better established studios such as Riot, Valorant but also from you know small up-and-coming studios such as V Rising from Stunlock.
Unknown Executive: On the AIGC, then, you know, as you're probably aware, it is not the provision of AIGC itself that is costly. If you look at a service like Discord, that actually is already profitable from distributing AIGC services mid-journey for creating graphics. Rather, it's the decision to build the large language model that powers the AIGC that is capital-intensive. And, you know, the capital is not small.
So we'll continue investing in international gains, but that's a business as usual investment. It's not a disruptive new investment from our perspective. On the AIGC then, as you're probably aware, it is not the provision of AIGC itself that is costly. If you look at a service like Discord that actually is already profitable from distributing AIGC. Just a little bit more detail on our earnings when we find out. Let's Especially a closing separately from Kubernetes.
service mid-journey for creating graphics. Rather, it's the decision to build the large language model that powers the AIGC that is capital intensive. And the capital is not small. Microsoft has stated that their large language will cost several hundred million dollars to build out.
Unknown Executive: Microsoft has stated that their large language will cost several hundred million dollars to build out. However, the nature of the cost is very different from the nature of the costs that China Internet was facing one to three years ago. Meaning that one to three years ago, most of the cost-heavy projects that we and our peers at China Internet were engaged in were actually projects where the cost scaled with the number of users you had. So if you decided to get into community group buying, then, you know, the more users you had, the greater your absolute cost base would be. Large language models are different.
However, the nature of the cost is very different from the nature of costs that China Internet was facing one to three years ago, meaning that one to three years ago, most of the cost-heavy projects that we and our peers in China Internet were engaged in were actually projects where the cost scaled with the number of users you had. So if you decided to get into community group buying, then the more users you had, the more
Unknown Executive: There's a fixed cost or cable stakes for being in the game, which is the capex that Microsoft referred to. But then, you know, that is the majority of the cost, at least in the near-term price-generating revenue. So, you know, we're absolutely embarked on bearing that fixed cost. And, you know, if you compare that fixed cost with our revenue, you can see it's a sizable number, but it's not a number that has very dramatic consequences for our margins.
the greater your absolute cost base was. Large language models are different. There's a fixed cost or a table stakes for being in the game, which is the capex that Microsoft referred to. But then that is the majority of the cost, at least in the near term price generating revenue. So we're absolutely embarked on bearing that fixed cost.
And if you compare that fixed cost with our revenue, you can see it's a sizable number, but it's not a number that has very dramatic consequences for our margins. And every other company that wants to build large language models, whether they're larger than us or smaller than us, will have a cost that's somewhat similar in absolute fixed times.
Unknown Executive: And every other company that wants to build large language models, whether they're larger than us or smaller than us, will have a cost that's somewhat similar in absolute terms. So this kind of fixed cost, this kind of cost, we think is a more desirable cost because it is fixed, as opposed to something like subsidies where the more users you have, the cost you borrow, which, you know, naturally disadvantages us as the company. Thank you. And also bear in mind that a lot of the cost is actually a hardware cost, which can now be amortized over a few years rather than you spending 40 years.
So this kind of fixed cost, this kind of cost, we think is a more desirable cost because it is fixed as opposed to something like the subsidies where the more users you have, the cost you bore, which in a naturally disadvantaged should ask the company for the most users. Thank you.
Also bear in mind that a lot of the cost is actually a hardware cost which can be amortized over a few years rather than you're spending for a year. Thank you.
But a lot of the cost is actually a hardware cost which can be amortized over a few years rather than you're spending 40 years.
Unknown Executive: Next question is Alex Yao from JP Morgan. Alex, your line is open. Hi guys, can you hear me okay? Yeah, we can hear you now. Yeah, sorry, I was muted.
Next question is Alex Yau from J.D. Morgan. Alex, your line is open.
Alex C. Yao: Thank you, management, for taking my question. I have a few follow-up questions on the prepared remark.
Alex C. Yao: The first one is regarding FinTech. I think this was less of a discussion for our future growth area last year, probably because of the regulatory environment change. But I noticed that you guys started to talk about fintech as one of the key future growth drivers in this prepared remark. So can you share with us your thoughts on the fintech development strategy in a new regulatory environment? And the second one is on video account monetization. Can you share with us a bit more feedback on the monetization progress so far, in addition to the quarterly revenue of one billion RMB? For example, what's the ad load?
Fintech. I think this was a less of a discussion for future growth area in last year, probably because of the regulatory environment change. But I noticed that you guys start to talk about Fintech as one of the key future growth drivers in this.
prepared remarks. So can you share with us your thoughts on FinTech development strategy in a new regulatory environment? And the second one is on video accounts monetization.
Alex C. Yao: What's the advertiser feedback? And how do you think about the monetization pace in the coming quarters? Thank you.
Can you share with us a bit more feedback on the monetization progress so far in addition to the quarterly revenue of 1 billion RMB? For example, what's the ad loads, what's the...
Advertiser feedback and how do you think about the monetization pace in the coming quarters? Thank you In terms of our Fintech strategy right now, I think the Situations that we have been through
Unknown Executive: In terms of our FinTech strategy, right, you know, I think the situations where we have been through a process of regulatory scrutiny, in which the authorities have taken a very good look at all our FinTech businesses and provided a lot of guidance as to how the business should be adjusted in order to be both compliant with the regulations and regulatory direction, as well as, as well as complying with what the intention of the regulators are. Through that process, we've also explained very carefully the way we conduct our business, right, you know, which is actually complying with regulation, which is very focused on risk management, which is very focused on value creation for the users, and also focused on working with a lot of licensed financial institutions.
process of regulatory scrutiny in which the authorities have taken a very good look at all our FinTech businesses and provide a lot of guidance as to how the business should be adjusted in order to
to be both compliant with the regulations and regulatory direction as well as
be both compliant with the regulations and regulatory direction as well as
as well as complying with what the intention of the regulators are. Through that process, we have also explained very carefully the way we conduct our business, which is actually complying with regulation, which is very focused on risk management, which is complaint management of our businesses, which is obviously retirees, descendants of financial manufacturing and larger Appl slack increases within a certain period of time.
We're focused on value creation for the users and also focused on working with the licensed financial institutions. And through that process, I think we have adjusted our FinTech businesses to be even more aligned with the regulatory direction. And at the same time, I think the regulators have actually got a better understanding of
Unknown Executive: And through that process, I think we have adjusted our... FinTech businesses to be even more compliant with the regulatory direction, and at the same time, I think the regulators have actually got a better understanding of the FinTech business as well as FinTech strategy, and I think the top regulators have already made the remark that there's going to be normalized regulation for FinTech businesses going forward.
Unknown Executive: And through that process, I think our FinTech business actually continued to grow on a consistent basis. And that points to the strength and the quality of the business itself. And going forward, we think our FinTech business will continue to expand alongside the macroeconomic development of the economy as a very important provider of support to consumption and to merchants' activities. So that's number one.
continue to grow on a consistent basis.
And that points to the strength and the quality of the business itself. And going forward without our FinTech business, we'll continue to expand alongside with the macroeconomic development of the economy as it's very important.
provider of support to consumption and to merchants activities. So that's number one. Number two, we felt the basic tick rate of our FinTech business will remain stable.
Unknown Executive: And number two, we felt that the basic tick rates of our fintech businesses would remain stable, but we would, over time, think about ways through which we can roll out value-added services to allow merchants to have better conversion rates and to give them tools so that they can manage their businesses more efficiently. And in those cases when we can actually generate better value for the merchants, then we can actually share a little bit of the value creation.
But we would over time think about ways through which we can roll out value added services to allow merchants to have better conversion rates, to give them tools so that they can manage their businesses more efficiently. And in those cases in which we can actually generate better value for the merchants, then we can actually share.
a little bit of the value creation and that would provide additional monetization mechanism for us. And thirdly in terms of financial products that can be developed such as wealth management, such as loans, such as…
Unknown Executive: And that would provide additional monetization mechanisms for us, tied in, that can be developed, such as wealth management, such as loans, such as insurance. In the longer term, we felt that there were also opportunities if we could actually develop these businesses in a cautious way, in a compliant way, with a very high focus on risk management, and at the same time, with more focus on working with the existing licensed financial institutions. So we feel that there's a good prospect for our entire business to go on.
insurance over the longer term without there's also opportunities if we can actually develop these businesses in a cautious way, in a compliant way, with a very high focus on risk management and at the same time.
with more focus on working with the existing licensed financial institutions. So we feel that there is a good prospect for our entire business going forward. And in terms of the video accounts monetization, Alex, so you know, he advertised some load facts.
Unknown Executive: And in terms of video account monetization, Alex, so the advertising load factor, it's a very light ad load, both compared to other Tencent properties and also even more so compared to the big incumbent short video services. The advertised feedback is very positive, and I say that both from a qualitative perspective but also, you know, quantitatively, that the revenue per thousand impressions that we achieve on video accounts ads, following a substantial increase in inventory in recent months, is actually superior to the revenue per thousand impressions achieved by Weixin Moments and substantially superior to the revenue per thousand impressions achieved by the two short-form video incumbents. And then, in terms of the growth trajectory. If you compare it with Weixin Moments, Moments was more of a sort of step change model of expansion and then consolidation and then expansion and then consolidation.
a qualitative perspective, but also in a quantitative way that the revenue per thousand impressions that we achieve on video accounts ads following a substantial increase in inventory in recent years. It is actually superior to the revenue per thousand impressions.
achieved by Weixin Moments and substantially superior revenue per thousand impressions achieved by the two short form video incumbents.
And then in terms of the growth trajectory, if you compare it with Weixin Moments, Moments was more of a sort of step change model of expansion and then consolidation and then expansion and then consolidation because with Moments, we would be very programmatically and periodically increase the maximum number of ads that a user could see from one to two to three and so forth.
Unknown Executive: Because with Moments, we programmatically periodically increased the maximum number of ads that a user could see from one to two to three and so forth. You know, today with the video accounts, it's much more dynamic and therefore a progressive, continual expansion, and one of the reasons we can do that now is because of the much more powerful machine learning infrastructure we have at the back end supporting our ad technology and our ads.
You know, today with the video accounts, it's much more dynamic and therefore progressive continual expansion. And one of the reasons we can do that now is because of the much more powerful machine learning infrastructure we have at the back end supporting our AI technology and our AI system.
Unknown Executive: So, you know, while the growth in video accounts and content is very impressive, and you can see it simply from the added inventory, a big part of the turnaround in our advertising revenue is what we're doing at the back end with the machine learning infrastructure.
So while the growth in video accounts from the front end is very impressive, and you can see it simply from the added inventory, a big part of the turnaround in our advertising revenue is what we're doing at the back end with the machine learning infrastructure. Thank you. Thank you, Alex. We're going to take the next question from Robert Ponce out of the Golden Stacks.
Unknown Executive: Thank you, Alex. We're going to take the next question from Ronald Kwong from Goldman Sachs.
Ronald Keung: We haven't touched on that so far. And second, on WeChat video accounts, time spent.
Thank you Pony, Martin, James, John , and Wendy. I want to ask one question on games. I think we haven't touched on that so far. And second on WeChat. Video account is time spent. So for games with the approval mostly normalized, how does management see the outlook for domestic games this year? Particularly this year of a reopening but yet with a low base last year.
Ronald Keung: So for games with the approval mostly normalized, how does management see the outlook for domestic games this year, particularly this year of a reopening, but yet with a low base last year? And after the kind of strong January with the seasonality in January and February, how is the grossing trending for a cleaner month like this month and especially for your legacy titles? And then my second question would be on video accounts, time spent, how is that time spent trending with previously? I think we've shared around 30 minutes or so versus
And after the kind of strong January with the seasonality in January , how, how is the grossing trending for a cleaner month like this month, and especially for your legacy titles? And then my second question would be on video accounts, time spent. So how is that time spent trending that with, uh, previously, I think we've shared it around the 30 minutes or so versus, uh, the, the other two players typically at a longer time spent. So, uh,
On that, do we see time spent and ad potential kind of tied together, or we actually could have a higher return, even more purpose-oriented and live-stream sessions that could come? So would our ad scale gradually kind of reach the moment's ad revenue scale that we mentioned before? When should we expect a potential reaching of moment's ad scale for our video accounts? Thank you. So for our domestic game business, then overall we're quite optimistic. We've begun the year in good shape and that trajectory is...
Unknown Executive: [inaudible] So for our domestic game business, then, you know, overall, we're quite optimistic. We've begun the year in good shape, and that trajectory is, so far, very healthy.
Unknown Executive: You asked specifically about the low base dynamic versus the reopening dynamic. Now, the reopening dynamic is something we've looked at a great deal because, you know, we're in the unusual position of operating, you know, very big, somewhat similar games in the Western world, as well as in China and other geographies. And so we can actually, you know, look at how reopening plays out on games in those different ge
So far very healthy you are specifically about the Low base dynamic versus the reopening dynamic now the reopening dynamic is something We've looked at a great deal because you know we're in the unusual position of operating in a very big somewhat similar games in the Western world as well as in China and other geographies and so
Unknown Executive: And what we see is that the reason why, in Western economies, there has been a roughly one year hangover period for the game industry post COVID is because, in those Western economies, the majority of the population was working from home for a period of many months. And that process of most of the population working from home for multiple months did create a high engagement base and monetization base, which the Western game industry is only now emerging from.
we can actually look at how reopening plays out on games in those different geographies. And what we see is that the reason why in Western economies there has been a roughly one-year hangover period for the game industry post-COVID is because in those Western economies, the majority of the population was working from home for a period of many months. And that process of most of the population working from home but for multiple months.
did create a high engagement base and monetization base, which the Western game industry is only now emerging from. On the other hand, in China, there was no phenomenon of the majority of the population working for many months. In their individual cities where people worked from home for two weeks, or in some cases, two months, but those were sporadic and scattered, and the impact has diminished because it was spread out over three years rather than concentrated over one and a half years.
Unknown Executive: On the other hand, in China, there was no phenomenon of the majority of the population working from home for many months. There were individual cities where people worked from home for two weeks or, in some cases, two months, but those were sporadic and scattered, and the impact was diminished because it was spread out over three years rather than concentrated over one and a half years. So at this point in time, we don't see a quote unquote reopening headwind for our game business, and I think it's possible that we won't see one given the unusual nature of the COVID pandemic's work from home behavior in China.
So, you know, at this point in time, we don't see a, you know, quote unquote, reopening headwind for our game business. And I think it's possible that we won't see one, given the unusual nature of the COVID outbreaks, work from home behavior in China.
Unknown Executive: Now in terms of video accounts, it is still true that the average time spent per user is actually much lower than the incumbents in short video, but the number actually has been growing consistently. And this is the sort of part of the driver of why the total time spent on our video accounts has been growing quite rapidly, and now it's at 1.2 times off-moment. And the driver of this increase in average time spent is that as our recommendation algorithm continually improves and as the size of our creative community and the amount of high-quality content continue to grow, we have much more ability to make our users spend more time on the content.
Now in terms of video accounts, it is still true that the average time spent per user is actually one foot each.
much lower than the incumbents on short video. But the number actually has been growing consistently. And this is sort of part of the driver of why the total time spent on our video accounts has been growing quite rapidly and now it's at 1.2 times of moments. And the driver of this increase in average time spent is our...
Unknown Executive: And in terms of the average time spent, of course, it reduces total time spent, and as a result, it reduces the total amount of advertising dollars. But I don't think the average time spent per person actually would necessarily reduce monetization per unit time. As a matter of fact, if somebody actually spent 30 minutes on the platform versus if somebody spent 150 minutes on the platform, the first 30 minutes probably would carry a higher value per unit time compared to the latter number of minutes. So we actually feel pretty comfortable with that.
Average time spent, of course.
It reduces total time spent and as a result it reduces the total amount of advertising dollars. But I don't think the average time spent...
per person actually would necessarily reduce the monetization per unit time. As a matter of fact, if somebody actually spent 30 minutes on a platform versus if somebody spends 150 minutes on a platform, the first 30 minutes probably would carry higher value per unit time. Fra ski
compared to the latter number of minutes. So we actually feel pretty comfortable that we have a good revenue generation opportunity here from the amount of time that we right now have, the monetization is actually relatively great.
Unknown Executive: We have a good revenue generation opportunity here. From the amount of time that we right now have, the monetization is actually relatively light. And as we continue to grow the total amount of time, then the potential for more advertising dollars will actually continue to increase. Thank you, James.
And as we continue to grow in total amount of time, then the potential for more advertising dollars will actually continue to increase.
Thank you James and Martin.
William Henry Packer: The next question is from Will Packer from XMVN.
Thank you James and Martin.
The next question is Will Packer from S&B&Q. Hi, hi management. Many thanks for taking my questions. Firstly, since the last earnings call in November , we've had the two sessions and some other regulatory news flow.
William Henry Packer: Hi, management. Many thanks for taking my questions. Firstly, since the last earnings call in November, we've had two sessions and some other regulatory news flow. Could you update us on any developments in the domestic regulatory backdrop? And specifically, could you comment on the implications of video games, short form video, and the financial services segment? And then, as a follow-up question, could you update us on your current capital allocation thinking? Are you considering further stake monetizations by distribution or sale during 2023? And on the other hand, how are you thinking about your third party investment priorities? Many thanks.
Could you update us on any developments in the domestic regulatory backdrop? Specifically, could you comment on the implications of video games, short form video and the financial services segment?
And then as a follow-up question, could you update us on your current capital allocation thinking? Are you considering further stake monetizations by distribution or sales during 2023? And on the other hand, are you, how are you thinking about your third-party investment priorities? Any thoughts?
Unknown Executive: Okay, on the regulatory updates, we previously talked about regulatory direction actually training towards supporting healthy development of our industry and completing the replication and also going forward with carrying out normalized regulation. I believe this trend continues based on recent supportive remarks from top leaders. For example, the president at a recent CPPCC meeting remarked that the government supports healthy and high-quality development of the private sector. He mentioned supporting platform companies to show competence in creating employment, driving consumption, and international competition. Premier also highlighted the private sector would have significant potential in the Chinese economy, and the government's report also reiterated the need to practice normalized regulation and also facilitate the healthy development of the platform economy.
Okay, on the regulatory updates, we previously talked about regulatory direction is actually trending towards supporting healthy development of our industry and completing the replication and also going forward carrying out normalized regulation.
I believe this trend continues based on recent supportive remarks from top leaders. For example, the President in a recent CPPCC meeting remarked that government supports Equ intercepted at CPPCC.
healthy and high quality development of the private sector. He mentioned supporting platform companies to show competence creating employment, driving consumption and international competition.
Premier also highlighted a private sector that would have a significant potential in the China economy and the government's report also reiterated to practice normalized regulation and also facilitate the healthy development of the platform economy. So overall,
Unknown Executive: So overall, the trend continues. And in terms of specifically the different segments that you talk about, in the area of games, we can see [inaudible] tangible positive developments as the game bondholds are approved on a more regular basis, illustrating that the industry regulation is indeed all normalizing. We have received six bondholds so far for the year of 2023, including imported bondholds, which I mentioned this week.
the trend continues. In terms of specifically on the different segments that you talk about, in the area of games we can see the most tangible positive development as the game banhals are approved on a more regular basis, illustrating that the industry regulation is indeed normalizing.
We have received six fund house so far for the year of 2023, including imported fund house for Merckx mansion this week. And then if you look at short video, I think the regulation is probably stable, right? If there's one potential issue, it probably may be on the time spent.
Unknown Executive: And then, if you look at the short video, I think the regulations are broadly stable. If there's one potential issue, it probably may be the time spent per user, which is actually very high. But if you look at our platform, the time spent per person is actually way below industry standards.
per user is actually very high, but if you look at our platform, the time spent per person is actually way below industry standards. So that even as an issue is probably not going to be that much of an issue for us. In terms of the financial services, we do believe that there is also a normalization trend.
Unknown Executive: So even if it's an issue, it's probably not going to be that much of an issue for us. In terms of financial services, we do believe that there is also a normalization trend. Having said that, you know, I think we will still continue to place very high emphasis on compliance, on responsibility as a platform, and also on proactive communication with regulators. So that's the update on the regulatory side.
And having said that, I think we still would be going forward continuing to place very high emphasis on compliance, on responsibility as a platform, and also on proactive communication with regulators. So that's the update on the regulatory side.
Unknown Executive: And then in terms of capital allocation, Will, so, you know, on the capital return front, we're very active. We'll be sending out the Meituan distribution in kind in the next two days. We announced today that we'll be increasing our regular annual dividend by 50%.
And then in terms of capital allocation, Will, so on the capital return front, we're very active. We'll be sending out the Meituan distribution in kind in the next two days. We announced today we'll be increasing our regular annual dividend by 50%. And previously when we were in an open trading window, we were buying back shares most days. And so we're very busy.
Unknown Executive: And, you know, previously when we were in the trading window, we were buying back shares most days. And so, you know, we're very busy. I wouldn't say I'm personally busy mailing out Meituan checks, but collectively as an organization, we're busy on the capital return front. On terms of investing capital in other companies, then, you know, looking domestically at China, where we're actually quite optimistic given what we see in Chinese consumption. We can't forecast how the market will value companies, but we can see what Chinese consumers are doing, which is becoming more active.
I wouldn't say I'm personally busy mailing out Maytuan checks, but collectively as an organization we're busy on the capital return front. On terms of investing capital in other companies, then looking domestically at China, we're actually quite busy.
optimistic given what we see on China consumption. You know, we can't forecast how the market will value companies, but we can see what China consumers are doing, which is becoming more active. And, you know, we ourselves have therefore become more active in terms of, you know, making investments in small early stage privately held companies in interesting growth areas in China.
Unknown Executive: And you know, we ourselves have therefore become more active in terms of making investments in small, early stage, privately held companies in interesting growth areas in China. Internationally, the environment is obviously extremely dynamic. And you know, we're being very selective but also seeking to be opportunistic. So that's on returning capital and on investing capital.
Internationally, the environment is obviously extremely dynamic and we're being very selective but also seeking to be opportunistic. So that's on turning capital and on investing capital.
Unknown Executive: Many thanks.
Hyungwook Choi: Thank you. The next question comes from Joan Choi from Taiwan.
Hyungwook Choi: Thank you, management, for taking my question. I have a question about your international game opportunity. I know that in the prepared remarks, you know, management did lay out a few things such as expansion of origin IP, new titles from your studios, and, you know, bringing top PC consoles to mobile. But considering that, if you look at the global gaming market, which is growing at a much slower pace, what drivers do you think will be important for our international game business?
Next question comes from John Choi from Daiwan. Thank you management for taking my question. I have a question on your international theme opportunity. I know that I think on the prepared remarks management did lay out a few things such as expansion of original IP, new titles for Marina Studios.
and bringing top PC consoles to mobile. But considering that, if you look at the global gaming market itself is also growing at a much slower pace, which drivers do you think will be important for our international game business? Can you kind of give us a priority of where the investments will go through and what kind of growth that we should be expecting over the longer term period? And then just a quick follow up, as we can see from the recent, you know.
more scrutiny from other social network platforms elsewhere on the geopolitical region. Do we see any risk on our gaming business as we continue to thrive internationally? Thank you. So in terms of the international game opportunity, we don't think it's stuck in slow growth mode. We think that the last year has been a transitional period because of the hangover from the work from home phenomenon that I discussed earlier, but we're actually structurally.
Unknown Executive: So in terms of the international game opportunity, you know, we don't think it's stuck in slow growth mode. You know, we think that the last year has been a transitional period because of the hangover from the work from home phenomenon that I discussed earlier, but we're actually structurally very positive about the game business globally, including internationally. And there's obviously been a number of games, you know, whether it's Call of Duty this year or Elden Ring or Harry Potter that have been phenomenally successful, both in the traditional premium game model as well as increasingly in the game as a service model. But you know, our market share of the international game market is still only in the mid single-digit percentage. But we think that, you know, we have certain.
certain structural competitive advantages that we can bring to fair, including the development capabilities from China, including the fact that we're at the forefront of trends such as multi-platformization, such as shifting to game as a service rather than premium game model and therefore both the China game industry in general and then Tencent within that.
well positioned to increase their market share of the global and the international game industry over time. And our focus is around those areas. It's around developing great games, particularly games that have a long life and those could be more player versus player games that are similar to physical sports or they could be more in a content driven player versus environment games that are more in the nature of storytelling.
Unknown Executive: And our focus is around those areas; it's around developing great games, particularly games that have a long life, and those could be more player versus player games that are similar to physical sports, or they could be more content-driven player versus environment games that are more in the nature of storytelling, but we're building up our capabilities in both kinds of games. And then in operating those games effectively, and, you know, operating games and the games as a service era involves much more continual hands-on support than publishing games in the premium game era, but we're reinvesting to be good at both developing and operating good games. And if we do that, we think we can continue to creep up on our market share in this very big $150 billion plus international game market. On the geopolitical front, then, you know.
but we're building up our capabilities in both kinds of games. And then in operating those games effectively. And operating games in the games as a service area involves much more continual hands-on support than publishing games in the premium game era. But we're investing to be good at both developing and operating good games. And if we do that we think we can continue to do that.
pre-pop our market share in this very big $150 billion plus international game month.
Unknown Executive: Everything faces some degree of geopolitical risk. However, I think that the risks faced by the game industry are dissimilar to the risks faced by social platforms that you alluded to for a few reasons. One is that, generally, you're not seeking to collect data on individual users and then, you know, optimize that user's experience based on, you know, very sort of targeted data. You're interested in collecting, you know, scale data on a large number of anonymized users, but you're not following, you know, the behaviors of individual actors.
On the geopolitical front, then everything faces some degree of geopolitical risk. I think that the risks faced by the game industry are dissimilar to the risks faced by social platforms that you alluded to for a few reasons. One is that the games generally you're not seeking to collect.
data on individual users and then optimize that user's experience based on a very sort of targeted data. You're interested in collecting scale data on a large number of anonymized users but you're not following the behaviors of individual actors.
Unknown Executive: And in addition, you know, with media platforms, there's concern around the content that's distributed, particularly the news content that's, you know, distributed to users. You know, with games, you don't have news content that's distributed to users. People don't go into a video game if they want to watch CNN. So, you know, while I wouldn't say that games are absent from geopolitical risk, I think the nature of concerns around games is, you know, different from the nature of the concerns around media platforms or social platforms.
And in addition, with media platforms, there's concern around the content that's distributed, particularly the news content that's distributed to users. With games, you don't have news content that's distributed to users. People don't go into a video game if they want to watch CNN. So, while I wouldn't say that games...
absent from geopolitical risk. I think the nature of concerns around games is different from the nature of the concerns around media platforms or social platforms.
Unknown Executive: Thank you, John. The next question comes from James Crockwell from Atlantic. (inaudible]
Next question comes from Jim Cottwell from Atlantic.
Next question comes from James Cogwell from Atlantic. James your line is open.
James Crockwell: Thanks very much, management. Thank you very much for taking my question. I actually wanted to go back to Alex's question on the FinTech business and try and get a little bit more detail, if I may. Two parts.
Thanks very much management, thank you very much for taking my question. I actually wanted to go back to Alex's question on the FinTech business and try and get a little bit more detail if I may.
James Crockwell: First of all, looking nearer term, would you say the double-digit quarter-to-date growth you described in the release represents a fully recovered growth rate? And if not, what kind of level should we expect from that business once it is fully recovered? Or maybe you could give us some color on what you've been seeing in the month of March? And then, looking a little bit longer term, you did mention in the release some of the other initiatives you're investing in within the fintech area to augment growth.
Two parts. Just first of all looking nearer term, would you say the double digit quarter to date growth you described in the release represents a fully recovered growth rate and if not what kind of level should we expect from that business once it is fully recovered or maybe if there's any colour on what you've been seeing in the month of March.
James Crockwell: So I was wondering if there's any kind of framework you could give us as to how much of fintech's growth in the next couple of years will come from volume, how much might come from increasing take rates, and how much will come from the value-added offerings you described.
take rate and how much will come from the value added offerings you describe.
Unknown Executive: Well, in terms of the growth rate in the fourth quarter, the number is actually against, the number we put it against January and February, which is, If you think about 2022, those two months were actually relatively normal periods within the COVID period, and then starting from March and April, those are sort of, you know, the more disruptive times. So, so it's actually tougher comparison from a number of perspectives for January and February and then easier comparison when you step into March and April. So, so that's sort of the nature of comparison.
In terms of
the growth rate in the fourth quarter, the number is actually against January and February . Which is, if you think about 2022, those two months were actually relatively normal periods within the COVID period. And then starting from March, COVID sample, again July is kind of a long chain and it's extremely honourable to benefit from this, of oh, IXA or some of these entities like
April , those are sort of the more destructive times. So it's actually tougher comparison from a number perspective for January and February and then easier comparison when it's stepping to March and April . So that's sort of the nature of comparison. I would say in general when...
Unknown Executive: And I would say in general, when our payment business is actually sort of new, as ubiquitous as it is, then it grows pretty much with consumption. And so I would say double digits is actually a pretty good growth rate. Now in terms of the areas that drivers grow, I think I actually explained this quite a bit already, which is now our volume would grow, but that would be alongside consumption.
our payment business is actually sort of as ubiquitous as it is, then it grows pretty much with consumption. And so I would say double digit is actually pretty good growth rate. Now in terms of the areas that drivers grow, I think I actually explained this quite a bit already, which is our volume would grow.
Unknown Executive: And in terms of tick rate, I don't think we want to increase the basic tick rate because we feel that if there is any additional gain that we want to make, then we should be making it from value creation. So we'll be very focused on saying, oh, if we actually serve these merchants and help these merchants to reach the customers, you know, how can we actually help the merchants to make their transactions easier, right?
But that would be alongside with the consumption. And in terms of tick rate, I don't think we want to increase the basic tick rate because we felt if there is any additional gain that we want to make, then we should be making it from value creation. So we'll be very focused on saying, oh, if we actually are serving these merchants and helping these merchants to
cover the customers, how can we actually help the merchants to make their transactions easier? For example, if they are actually making transactions over our new programs, then there are ways through which we can actually make the...
Unknown Executive: For example, if they are actually making transactions through our programs, then there are ways through which we can actually make the conversion better. There are ways through which we can actually help them to increase their ticket size.
Unknown Executive: And when we actually do these things, which are value-added to the merchants, then I think, you know, it's fair for us to charge a certain monetization for the value creation, a part of the value creation that we are making for them. And in terms of additional drivers of growth, it will be coming from financial products, right? You know, when we are offering, We are offering wealth management products, and over time, we will offer insurance products that would help our users and our merchants to be served better.
conversion better, there are ways through which we can actually help them to increase their ticket size. And when we actually do these things, which are value added to the merchants, then I think it's fair for us to charge a certain monetization for the value creation, a part of the value creation that we are making for them.
And in terms of additional drivers of growth, it will be coming from the financial products, right, when we are offering...
our loan products and when we are offering wealth management products and when over time we offer insurance products that would help our users and our merchants to be served better and when we offer these products which are in conjunction with licensed financial institutions which
Unknown Executive: And when we offer these products, which are in conjunction with licensed financial institutions, which is completely in compliance with the existing regulatory framework, then we can actually generate more revenue. So that's the way we think about our FinTech.
completely compliant with the existing regulatory framework, then we actually can generate more revenue from it. So that's the way we think about our fintech business. Thank you, Martin. Okay, James, we will take the last question from Thomas Chong from Jefferies. Hi, good evening. Thanks, management, for taking my questions.
Unknown Executive: Hey James, we're going to take the last question from Thomas Chong of Jeffries.
Thomas Chong: Hi, good evening. Thanks, management, for taking my questions. I have a question regarding the margin side. Given that on the top line, we have a lot of opportunities ahead.
I have a question regarding on the margin side. Given that on the top line we have a lot of opportunities ahead, on the op-ed side we are seeing the sales and marketing expenses may have a very good job on a sequential basis. So just want to get some color with regard to the margin outlook in 2023 and whether...
Thomas Chong: On the OPEX side, we are seeing the sales and marketing expenses. They do a very good job on a sequential basis. So just want to get some color with regard to the margin outlook in 2023 and whether the OPEX in Q4 can be used as a basis of a benchmark going forward. And my second question is really about consumer behavior post-pandemic. Any color that would affect our business or be incremental to our business segments can be shared. I would be grateful. Thank you.
Unknown Executive: Yeah, in terms of the margin, while we don't provide guidance, I would like to share with you some bits and pieces. As you know, approximately half of our revenue is closely contributed to and benefits from Chinese economic activity. And our business has stayed resilient when facing macro challenges, and we are well positioned to benefit from the economy.
to our business segments can be shared, we'll be grateful. Thank you.
Yeah, in terms of the margin, while we don't provide guidance, I would like to share with you some bits and pieces. As you understand, approximately half of our revenue is probably contributed and benefit from China economy activity. And our business has stayed resilient when facing macro challenges, and we are well positioned to bet.
Unknown Executive: On a holistic basis, we have been seeing positive signs in January and February for revenue payment and advertising upon reopening. So, you know, we can assume that, you know, for some of our services, there's some room for improvement. And of course, you know, when you look at, you know, some of our segments, just like online advertising, there might be substitutional fluctuation and margin trends, although they should show positive, you know, on a year-on-year basis in 2023 due to industry recovery and going contribution for high-margin video account impact.
a margin basis, there's some room for improvement. And of course, you know, when you look at, you know, some of our segment just by online advertising, there might be substitution or fluctuation and margin trends for those who.
show positive on a year-on-year basis in 2020 free due to industry recovery and growing contribution for higher margin video accounts in feedback. In terms of the expenses, I think Ma Jin and James discovered a little bit, but I'll just elaborate a little bit more.
Unknown Executive: And in terms of the expenses, you know, I think Martin and James have covered a little bit, but I'll just elaborate a little bit more. Promotion and advertising, you know, inside selling and marketing has already increased by 40% year-on-year for the whole of 2022. And I would say that this has already been pushed to a very low base.
Promotion and advertising inside the selling and marketing has already increased by 40% year on year for the whole 2022. I would say that this has already been pushed to a very low pace. So we expect that expenses may notch up with new business opportunities, for example, new things, but we are very focused on our eyes.
Unknown Executive: So we expect that expenses may notch up with new business opportunities, for example, new gains, but we are very focused on ROI, you know, as opposed to, you know, well, in the past. So it will be increasing in a more disciplined way. And for IMD, you know, it increased by 18%, year on year, in 2022. And while we will continue to invest in strategic areas, just like gains and AI, we expect R&D to increase, but the growth rate will be more moderate.
as opposed to in the past. So it will be increased in a more disciplined way. And for IMD, it increased by 18% year on year in 2022.
While we will continue to invest in strategic areas just like games and AI, we expect R&D to increase but the growth rate will be more moderate. Say for instance, as Martin explained earlier, even for AI investments, a lot of investment is in form of service, because of which will be amortized over a period of four years, and so the sorry atRuIOS.
Unknown Executive: Say, for instance, as Martin explained earlier, even for AI investment, a lot of investment is in the form of a service, which is, because of which, will be amortized over, you know, during the four years. And so the impact is not that material.
Unknown Executive: And going to one another big item, which is the staff force, it grew 60% year-on-year while the headcount dropped by 4% despite there being a few thousand additional headcounts from graduates and another 2,000 from newly acquired subsidiaries. We expect headcount to grow but remain disciplined, and another measure will come into play in 2023. Great.
account to growth that remains disciplined and that the measure plays in 2023. Great. So in terms of the consumer behavior, we have a couple of lenses including in a 10-Pay activity, including mini program, transactional activity. What we see is generally quite positive. There's obviously not an people managing theBigina, but a lot of people protein managing Legal America.
Unknown Executive: So, in terms of consumer behavior, you know, we have a couple of lenses, including Tempe activity, including mini-program, transactional activity, and, you know, what we see is generally quite positive. There's obviously some nuance, and so, as I mentioned earlier, low-ticket price items are selling better. Certain high-ticket price items, like cars, not, but certain other high-ticket price items are also selling better. In terms of offline versus online, then there's a sharper, you know, both the growth, but there's a more pronounced turnaround for offline, because offline was, you know, more affected last year, particularly early in the second quarter last year and late in the fourth quarter last year.
some nuance and so as I mentioned earlier, low ticket price items are selling better. Certain high ticket price items like cars, not certain other high ticket price items also selling better. In terms of offline versus online, then there's a sharper, both the growing but there's a more pronounced turnaround for offline because offline was more impacted last year particularly in...
early in the second quarter last year and in the late in the fourth quarter last year. So at the margin the pickup is more pronounced for offline than online. But you know overall a broad-based consumption recovery that you know, we're seeing you know flowing through to us in terms of our payment volumes and revenues in terms of our mini program activity and revenues in terms of our
Unknown Executive: So, at the margin, the pickup is more pronounced for offline than online, but, you know, overall, a broad-based consumption recovery that, you know, we're seeing flowing through to us, in terms of our payment volumes and revenues, in terms of our mini-program activity and revenues, in terms of our, you know, advertising activity and revenues.
Unknown Executive: Advertising Activity and Revenues
advertising activity and revenues. Thank you. Thank you. Thank you for all the questions. We are now ending the webinar. If you wish to check out press reviews and other financial information, please visit our section of our company website at www.tansin.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.
Unknown Executive: Thank you for all the questions. We are now ending the webinar. If you wish to check out press releases and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also be available. Thank you, and see you next quarter.